Mastercigars Direct Ltd v Hunters & Frankau Ltd & Ors

This is a trade mark dispute concerning the import into the UK of many well-known brands of hand-rolled Cuban cigars (also known as ‘habanos’). UK and Community registered trade marks subsist for these brands some of them dating I believe, from Victorian times. The dispute is the upshot of ongoing concern by the single Cuban proprietor of these trade marks (together with its sole and exclusive UK distributor) as to the legitimacy of importing habanos so trademarked which have been purchased from official sales outlets in Cuba and thereafter imported (duty paid) into the UK by persons other than the UK distributor for sale here. A core issue is whether such importation has the implied consent of the trade mark proprietor.

In fact, the action has two aspects: first, there is a declaratory action by the claimant, MasterCigars Direct Ltd (hereafter ‘MDL’), the importer (and owner) of a particular consignment of habanos (hereafter ‘the Consignment) which seeks its release from its present detention under powers vested in HM Customs and Excise (‘HMCE’). The declaratory relief sought is broadly based upon the legitimacy claimed for the importation of the Consignment which is said to be neither counterfeit nor infringing within the meaning of the relevant UK statute and Council Regulation (EU). This action (which I shall call ‘the declaratory action’), is against the trade mark proprietor’s UK distributor which instigated the detention by the Customs. MDL’s claim is traversed on the basis that some of the material in the Consignment is indeed counterfeit being made in infringement of certain registered trade marks owned by the proprietor. Then there is a Part 20 claim for infringement of the same trade marks by the Cuban trade mark proprietor against inter alia MDL. I shall refer to this as the ‘the infringement action’. The infringement action in fact has two strands - which are not spelt out as such in the Part 20 claim. First, infringement is said to have arisen on the basis of MDL’s ‘parallel importation’ of habanos bearing these trade marks and this has provoked the well-known defence of ‘exhaustion of rights’. I have called this ‘the parallel imports’ case intending thereby to incorporate the defence of exhaustion of rights. As I have said, there is also an allegation in response to the declaratory action that certain cigars in the Consignment (and their associated packaging) are actually counterfeit goods. This is denied by MDL as a matter of fact. I have called this for convenience ‘the counterfeit case’ and to the best of my recollection, this occupied the longest time at trial. It is simply a regular trade mark infringement action, albeit with some unusual features. Though the two strands of the infringement action therefore have a different procedural genesis, I have not sought to differentiate them on that basis. I would also mention at this juncture that the parallel imports case is irrelevant to the detention of the cigars by HMCE, whose powers may only be exercised in relation to goods which are actually counterfeit.

The action has greater complexity than the above brief summary might suggest. It is evidently a test case which, as will be seen, bristles with points of law and bitter disputes of fact; it also involves inter alia questions of customs law and procedure, the legal implications of a command economy in the context of ‘economic linkage’, statutory offences incidental to the importation of goods which infringe IP rights – and not least, Article 6 ECHR .

The owner of most (if not all) of the trade marks in question is Corporacion Habanos SA of Havana, a Cuban company, which, as I have said, is the Part 20 Claimant. I shall henceforth refer to this company as ‘HSA’. The defendant to the declaratory action is a UK company, Hunters & Frankau Ltd (hereafter ‘H & F’), who have been involved in the Cuban cigar trade in this country since 1790. They are HSA’s sole and exclusive distributors in the UK.

Prior to the opening of the case, I informed Mr Mark Vanhegan (who appeared for both H & F and HSA), that from time to time I enjoyed smoking habanos, enquiring whether this might disqualify me from hearing the case. Both he and Mr Geoffrey Hobbs QC (who appeared with Mr Ashley Roughton for MDL and its managing director, a Mr Christopher Kenyon, the second defendant in the Part 20 proceedings) took instructions. Having distanced themselves from any personal attraction to tobacco smoking, counsel told me that their respective clients raised no objection to my continuing to hear the case despite my inevitable experience as an occasional habano smoker.

I have said that habanos are hand-rolled cigars. Included in the Consignment were a number of machine-made Cuban cigars known as Cohiba Mini Cigarillos. None of these are alleged to be counterfeit but as I understand it, their import does form part of HSA’s ‘parallel import’ case. An agreed schedule setting out the make-up of the Consignment is found at X/11 and forms Annex 1 to MDL’s closing skeleton of argument. A glance at the schedule shows the Consignment to include various shapes and sizes of habano representing a selection from all the better known brands. In all there were about 3300 cigars, all of them packaged. In the counterfeit case, as much turns on the packaging as on the authenticity of the cigars themselves.

A number of witnesses of Spanish and Cuban nationality have given evidence and there has been some confusion about the correct way to address them. The tradition of both sexes in both Castilian and Cuban Spanish is to add to one’s surname, one’s mother’s maiden name. Thus for example, the name of the Legal Director of HSA was Sr. Adargelio Garrido de la Grana. I refer to him (for he gave evidence) simply as Sr Garrido.

Unfortunately, the parties’ solicitors became personally involved in the evidence relating to the sampling of the Consignment at Gatwick and elsewhere and they were cross-examined (twice in the case of MDL’s solicitors) about this. Mr Gallagher of Mishcon de Reya gave evidence on behalf of his clients HSA and H & F. For the reasons which I shall give later, I did not find his evidence relating to the sampling to be satisfactory. For MDL, Mr John Maycock and his assistant Miss Elizabeth Harding of Messrs Withers, gave evidence for MDL. I found them both to be witnesses who provided valuable and credible evidence which was of assistance to the Court.

Bundle references are given thus: A3/123 viz. Bundle A, tab 3, page 123. Transcript references are given thus: D1/123.viz Day 1, page 123

I shall have to re-visit the circumstances which have given rise to this action in more detail, but what occurred was essentially this. On 28 August 2004, the Consignment arrived at Gatwick airport as freight on a Cubana flight from Havana, the consignee being according to the air waybill ‘Mr Peter Craggs Masters Cigars’ (sic) (Footnote: ¹). The cigars in the Consignment had been paid for in US dollars (Footnote: ²) on 30 June 2004 and picked up on 24 August 2004 at an official sales outlet for habanos called Casa del Habanos at 5ta Avenida in Havana, an establishment of which I shall have more to say in due course. I have called it the ‘Quinta Avenida Casa’, there being other such ‘Casas’ in Cuba (and indeed elsewhere). On arrival at Gatwick, as I have said, the Consignment was deemed by HMCE to contain cigars that were ‘counterfeit’ and was detained by HMCE. This occurred as a result of information supplied to it by H&F and was based, I believe, on suspicions passed on to HMCE arising from previous importations of habanos by MDL. Though a ‘parallel imports’ problem had been brewing for some time between MDL, HSA and H&F, it was the detention of the Consignment by HMCE that has ignited this litigation.

HMCE’s powers relating to the seizure and detention of imported goods which are suspected of being counterfeit arise on foot of Council Regulation (EC) 1383/2003 of 23 July 2003 (OJ L 196, 2 Aug 2003, pp7-14). This has been re-printed as Appendix 25 of Kerly on Trade Marks 14th Edn, A25-001. I shall call this ‘the Regulation’ and later references to numbered articles correspond to articles in the Regulation. The Regulation concerns customs action against goods suspected of infringing certain industrial property rights and the measures to be taken against goods found to have infringed such rights. Article 3(1) states that ‘This Regulation shall not apply to goods bearing a trade mark with the consent of the holder of that trade mark...’ (Footnote: ³). The word ‘counterfeit’ as used in the judgment has the meaning ascribed to it by Art 2(1) (a)(i) (Footnote: ⁴).

A trade mark proprietor has, I think, 10 days to inform HMCE if in its opinion an imported consignment contains (or comprises) infringing items. In the present case this was done by a Mr Philip Hambidge (H&F’s company secretary and a director) by means of a signed witness statement in prescribed form dated 24 September 2004 (Footnote: ⁵) which was sent to HMCE. Schedule A to the statement contained a list of the relevant trade marks. Mr Hambidge then stated that in his opinion any goods identical to those set out in Schedule B ‘are to be treated as counterfeit as defined by the law.’ (Footnote: ⁶) It was also stated that H&F were exclusive licensees in the UK of HSA and were ‘authorised by [HSA] to use the above trade marks.’ On foot of this, HMCE seized the entire Consignment for the purposes of condemnation proceedings regardless of whether it also contained non-counterfeit goods – which is the normal procedure in such circumstances. I was informed by Mr Richard Vandervord a Senior Officer (Frontier Freight) of HMCE (who gave evidence (Footnote: ⁷)) that import duty has not been paid on the Consignment and would remain unpaid pending the outcome of these proceedings. The bulk of the Consignment has remained in a godown operated by PBS Freight International Ltd of Crawley (‘PBS’), initially on behalf of MDL under the supervision of HMCE. The warehouse is what is known as an ERTS (Footnote: ⁸), the significance of which will emerge later, but for present purposes it may be assumed that the Consignment is in limbo.

The Consignment has been the subject of sampling and inspections on a number of occasions. Samples have been taken from it for examination and experiments have been conducted on sample cigars and packaging in the premises of H & F by employees of HSA. Such experiments, which were intended to establish the presence of counterfeits, were conducted both prior to the hearing and even during the hearing itself. The most important experiments were conducted ex parte, representatives of MDL (and of HMCE itself) not having been present. The execution of the sampling and the results of these experiments were the subject of much evidence and I would add, of sustained criticism by Mr Hobbs.

Later, on 16 February 2005, after a further inspection, Mr Hambidge made another witness statement identifying what he called ‘indicia of inauthenticity’ in the counterfeit cigars and packaging, a phrase which became much used later in the counterfeit case. Mr Hambidge’s second witness statement arose as a result of the first of a number sampling and analysis exercises undertaken by HSA/H&F of items in the Consignment. In response, two experts were instructed to deal with the indicia of inauthenticity: Sr Carlos Martin (Footnote: ⁹) and R Alberto Lucas (Footnote: ¹⁰). MDL conducted no counter-experiments however.

In June 2005, MDL’s solicitors notified HMCE that production of the sample cigars and packaging upon which evidence had been filed would be required at the forthcoming hearing, but HMCE declined to make the samples available until they were ordered to do so by Pumfrey J. (Footnote: ¹¹)

At an early stage, indications emerged that the counterfeit case might not be going quite as planned.

I shall begin with HSA whose role is central to both cases. They are the Part 20 claimants and in reality, the declaratory proceedings were also defended by HSA acting through H & F: D11/1246-1247.

I have taken what follows largely from the evidence of Sr Garrido (see above), who gave evidence at trial as an expert in Cuban law as well as a witness of fact. Though Mr Hobbs criticised his performance as a witness, I have no reason to doubt the accuracy of the substance of the evidence he gave concerning HSA.

HSA neither grows tobacco nor rolls or packages habanos. These operations are carried out in the traditional manner at (often) historic plantations and in fabricas before being sent to a special warehouse which is operated by HSA. Neither does HSA sell habanos directly to consumers (either within Cuba or overseas), this being done through its appointed distributors. In a subsequent section I shall return to the habanos story, since this is intimately connected with the case on counterfeiting.

HSA is a joint-venture limited company established under Cuban law. For practical purposes, it may be regarded as the successor to the government-owned organisation (called Empressa Cubana del Tobacco or Cubatobacco), which was responsible for the world-wide export and marketing of habanos. Furthermore, after the most recent Cuban revolution, ownership of the trade marks for Cuban cigars seems to have passed first to Cubatobacco. In September 1994, when HSA was incorporated, Cubatobacco acquired some 50% of its shares, the remainder being acquired by a Spanish company Altadis SA (Footnote: ¹⁶). The latter incorporates both Spanish and French shareholders and is listed on the Madrid and Paris stock exchanges. Later, in connection with the parallel imports case, I shall find that HSA is an autonomous company which is independent of the Cuban state. HSA gradually came to acquire almost all the well-known trade marks for habanos from Cubatobacco and where it does not yet own such marks outright, it has exclusive world-wide distribution rights in respect of them. For present purposes, I may therefore treat HSA as proprietor of all the registered trade marks in issue.

Sr Garrido has produced the memorandum of incorporation of HSA (Footnote: ¹⁷). The latter provides inter alia that HSA has the exclusive right to buy, sell and market internationally, rolled tobacco of Cuban origin of any type. In fact, HSA (and no other Cuban commercial entity) is registered to carry out export sales of habanos, directly appointing its overseas distributors of whom H&F is one, for this purpose. It also manages domestic sales of quality habanos through a number of selected domestic outlets (such as the Casas). In §14 of his witness statement, Sr Garrido said this:

Nonetheless, the evidence establishes that HSA is a major player in the Cuban economy. I was told that tobacco is second only to manganese ore as a foreign exchange earner for the country. Sr Garrido and Sra Garcia (HSA’s former Marketing Director) gave evidence about HSA’s central role in the Cuban tobacco industry (Footnote: ¹⁸). It reviews and fixes the price of habanos both for export and for local sale. It determines the brand positioning for habanos, advertising and general sales structure and all aspects of local marketing strategy. It determines all aspects of packaging and trade mark use – and more.

HSA also maintains an internal anti-counterfeiting ‘brigade’ (the ‘DTI’) which at the relevant time was headed by a Sr Gustavo Guevara. This is evidently an important department since the Cuban rolled tobacco industry has to deal with a good deal of counterfeiting both within Cuba and worldwide. In his witness statement, Sr Garrido described the following anti-counterfeiting measures taken by HSA (Footnote: ¹⁹):

In the counterfeit case, I was struck by the fact that in spite of all this, these measures did not greatly feature in HSA’s case, HSA choosing rather to rely on experiments to prove the presence of counterfeits. I shall have to examine the role of Government seals, holograms and the facturas later in this judgment.

During the course of the trial I was given a shrink-wrapped, loose-leaf book entitled ‘The Complete Guide for Habanos’ Enthusiasts’ (September 2002, London). I shall henceforth refer to this as the ‘Guide’. The Guide is published by H&F under the auspices of HSA (who are its nominated copyright owners) and is a work which I have found most informative. Parts of this book were in fact copied and included in the Court bundles but not certain separate parts relating to cigar sizes and cigar diameters (a gauge card), these having been included in the shrink-wrapped package which I was given. I mention this because during the trial use was made of the cigar gauge card to check some of HSA’s indicia (which were alleged to show the presence of counterfeits) against the corresponding dimensions of the same ‘authentic’ cigar brands.

H & F’s principal activity is the importation of Cuban cigars and allied products. H&F has been appointed sole and exclusive distributor in the UK (and elsewhere (Footnote: ²⁰)) for habanos under a number of agreements, the first having been with Cubatobacco in 1990. The current agreement is with HSA and is dated 30 June 2002 (Footnote: ²¹). H&F’s current turnover is a little short of £25 million. Its marketing director, a Mr Simon Chase, (who is also one of the editors of the Guide) gave evidence at trial about how H & F operated.

MDL was incorporated in 2001 (Footnote: ²²) by Mr Kenyon who is the beneficial owner of the company and its sole director. The business of MDL is to import cigars into the UK and sell them here to the wholesale and retail market - mainly I believe, via an internet website. Mr Kenyon’s intention was to provide authentic Cuban cigars at a ‘better’ price

Mr Kenyon could I think best be described as a determined entrepreneur. He was the subject of sustained personal attack by H&F who regarded him as the troublesome eminence grise behind this litigation. Though bad faith was insinuated throughout, there is in fact no pleaded case of fraud or dishonesty against him –or for that matter against MDL. Mr Vanhegan accepted that that would have to be pleaded if such accusations were to be made and pursued at trial: D1/32. At the outset, Mr Hobbs applied to have a number of paragraphs of the witness statements of Mr Chase and a Mr George Atkinson, who gave evidence as a consultant to H&F, struck out as being a procedural embarrassment and having no probative value to anything falling to be decided in these proceedings. The evidence (which was extensive) covered a miscellany of alleged frauds, dishonesties, sundry corporate irregularities, run-ins with the Cuban police and other colourful episodes. I acceded to Mr Hobbs’ application, giving my reasons for so doing in a separate judgment (Footnote: ²⁴).

I have found it difficult satisfactorily to assess Mr Kenyon as a witness. He was calm under aggressive cross-examination and had a careful demeanour. In spite of what I have recorded in the previous paragraph, much time in cross-examination was directed to topics which were intended to undermine his personal integrity – such as his true date of birth in India and the indifferent quality of some of his previous business activities. He was found to have been wrong on certain facts (none of them in my view being determinative of any major issue) and in spite of an assertion by Mr Vanhegan that he had deliberately misled the Court, I do not propose to characterise him as a liar or even as an ‘unreliable’ witness. I have nevertheless received his evidence with some caution.

I have mentioned that condemnation proceedings should actually have been initiated by HMCE by 29 September 2004, the day that MDL was notified by HMCE that certain cigars in the Consignment had been declared by H&F to be counterfeit. Having heard nothing more for over two months, Mr Kenyon became concerned about the fate of the Consignment. On 7 December 2004, MDL therefore commenced proceedings against H & F for certain declaratory relief, in particular that the cigars (and/or packaging) in the Consignment were not counterfeit and thus, should not have been seized and moreover, should now be released. There was also a claim for malicious falsehood which was later abandoned. I shall consider the wording of the declaratory relief sought in the next section.

In the declaratory proceedings, no claim was raised by MDL against either HSA - or against HMCE.

The Particulars of Claim lay the ground for the allegation of consent on the part of HSA to what had occurred: see §24. In particular, it is said that the cigars had been purchased from the trade mark owner HSA in packaging which had been marked by it and that HSA :

On 7 April 2005, a defence was filed by H&F and the Part 20 claim commenced by HSA. The defence asserted that ‘the cigars, alternatively, some of the cigars, are counterfeit’. In support of the assertion, H & F relied upon the ‘indicia of inauthenticity’ which had been identified by Mr Hambidge in his witness statement dated 16 February 2005.

The Part 20 proceedings against MDL and Mr Kenyon alleged infringement of 10 of HSA’s UK trade mark registrations (Footnote: ²⁶). Mr Kenyon was sued as the party who personally procured the alleged infringement by MDL. The allegations of infringement were denied and implied consent to the marketing of the allegedly infringing cigars was asserted by MDL on the basis of a course of dealing between HSA and the Quinta Avenida Casa ‘who were acting for and on behalf and with the authority of [HSA]’ i.e. on the basis of the historic consignments.

Paragraphs 6-11 of the Reply read as follows (Footnote: ²⁷):

I should make a few comments on the foregoing. The $ 25,000 limit to the value of individual purchases of habanos at official outlets in Cuba is a matter for further comment later in this judgment. The pleadings in the Part 20 claim also show that HSA’s allegations are not confined to counterfeits within the Consignment, though no particulars have been given of any other counterfeits. Finally, there was virtually no disclosure on HSA’s part in respect of what it had pleaded. This was one of Mr Hobbs’ criticisms of HSA’s disclosure generally, which in my view was justified.

Previous importation of cigars by MDL covered at least nine consignments prior to the Consignment and spanned just over a one year period, starting on 17 June 2003. In aggregate the value of cigars imported since June 2003 has been approximately $150,000.

Details of the historic consignments have been set out in Mr Vanhegan’s closing submissions: §66. It is not in doubt both that these earlier importations took place and that the cigars were thereafter offered for sale and sold in the UK by MDL. The habanos in all the consignments (including the Consignment) were purchased in Cuba at various official outlets; all the invoices (facturas as they were called at trial) which must be issued by the outlet (see below), having been disclosed. Purchases of habanos at the official outlets must be made by individuals, the facturas requiring both a name and a passport number to be given. In every case, the purchaser of these historic consignments was either Mr Kenyon himself or Mr Craggs or Mr Craggs’ Cuban partner, Ms Janet Cruzata acting for MDL.

There was no evidence (though there was some suggestion) that the historic consignments also contained counterfeit material. What is important about this for present purposes however are the contentions that (a) all these consignments were parallel imports of habanos made without HSA’s consent and were in any event infringements of its trade marks, and (b) as a result of HSA’s objection to at least the later historic consignments, Mr Kenyon (and thus Mr Craggs and MDL) were well aware of HSA’s hostile attitude to what they were doing before they purchased and attempted to import the Consignment.

As mentioned, in its pleading, MDL also relies on the historic consignments to show a ‘previous course of dealing’ and thus consent on the part of HSA. Thus, in relation to consent, in their Defence to the Part 20 claim, MDL pleads as follows (Footnote: ²⁹):

MDL also says that in the case of every consignment, the value of the habanos was less than $25,000 per person and moreover, all the goods were sold to one or other of the persons previously mentioned.

Not surprisingly, there have been a number of interlocutory events in these proceedings. Following the abandonment of an application for interim relief, David Richards J ordered that the trial of the declaratory action to be expedited (18 March 2005, A/13). On 15 April 2005, Laddie J was concerned with directions for the conduct of the Part 20 proceedings (A/14). He inter alia directed the Part 20 Claim to be heard as part of the expedited trial and stayed the question of Mr Kenyon’s personal liability pending the determination of the principal issues. There was then a disclosure and security for costs application before Etherton J on 23 June 2005 (A/15). This resulted in (inter alia) an order for substantial further disclosure by HSA, the deficient outcome of which was the subject of ongoing (and in my view justified) complaint by Mr Hobbs. Relatively few of the documents falling within the scope of the Order were ever disclosed and what was produced was both late and usually in Spanish.

Finally, there were two pre-trial reviews before Pumfrey J on 29 June 2005 and 4 July 2005. I have mentioned that a ‘sample’ of cigars and packaging was taken from the Consignment by H&F for examination and experiments. On three occasions, once by telephone and twice by letter, Mr John Maycock a partner in Messrs Withers, MDL’s solicitors, asked HMCE that this sample be released from custody for use at trial. On each occasion, HMCE refused the request. This matter therefore came before Pumfrey J at the pre-trial review hearing on 29 June 2005. I am told that the judge made it clear that the sample should be made available at the forthcoming hearing and for this purpose, should be delivered into the joint custody of the parties’ solicitors. HMCE however stood firm: there would be no handing over of the sample. Indeed, I understand that HMCE indicated that they would even resist the making of an order to that effect. On 4 July 2005, on MDL’s application, Pumfrey J made an order requiring HMCE to deliver the sample into the joint custody of the parties’ solicitors and this was done on I think, 5 July. Thereafter, the sample has been held at the offices of Messrs Lovells, solicitors, in High Holborn in a capacious plastic bag which was brought to Court every day. In the meanwhile, the balance of the Consignment has remained in bond at the PBS warehouse. This incident, trivial though it may seem, is one aspect of what I have come to think is an unsatisfactory procedure as regards the import of allegedly counterfeit goods when a dispute arises as to authenticity.

At the first of these hearings before Pumfrey J, the issue of the right to open was also canvassed. Pumfrey J also gave directions regarding the use at trial of the witness statements of MDL’s Cuban witnesses who by that time had been ‘advised’ not to ‘collaborate’ with MDL: see the third witness statement of Elizabeth Harding of Withers at E1/5. As will be seen, by the time of trial, all MDL’s Cuban witnesses had in fact retracted the evidence given in their first witness statements.

This may be a convenient moment to pause to consider a satellite submission of Mr Vanhegan concerning the propriety of the Court ever making the declarations sought. His first point arises because of the existence of the condemnation proceedings to which I have referred. These being criminal proceedings, he submitted that the declaratory proceedings were non-suited

The declarations sought by MDL are as follows (Footnote: ³⁰):

do not fall within the meaning of counterfeit goods as set out in [the Regulation]

are not and were not as of 27 October 2004 liable to be seized as liable to forfeiture within the meaning of s. 42 of the Customs & Excise Management Act 1979 when used in aid for the purposes of Chapter IV of [the Regulation]

should not by at least 27 October 2004 have been detained or suspended from …release save for the completion of all other customs formalities not relating to [the Regulation]

are not and were not infringing goods within the meaning of s. 10 (1),(2) or (3) of the Trade Marks Act 1994

are not and were not infringing goods within the meaning of Article 9 of the CTMR

The basis of Mr Vanhegan’s submission on the impropriety of granting any relief in the declaratory action took two forms. He submitted that since the declarations sought are in negative form one first had to be most careful in the exercise of the discretion. He relied upon an observation of Lord Woolf MR in Messier-Dowty Ltd v Sabena SA [2000] 1 WLR 240 at §§41-42 where he said:

The condemnation proceedings have been stayed so as to allow the declaratory proceedings ‘to proceed to determination’ (see §16(c) above). These words said Mr Vanhegan, strongly suggest that the outcome of the Part 20 proceedings will (to say the least) be relied upon by the parties (and the court) at the future hearing . They may even be determinative he said, in the light of s. 154(2) of the Customs & Excise Management Act 1979 and of §§ 3 and 7(2) of The Goods Infringing Intellectual Property Rights (Customs) Regulations 2004, SI 2004 No 1473. which place the burden of proof on MDL in inter alia the following respects:

To show the place from which the goods were bought

Whether or not any goods or other things are of the description or nature alleged in the information, writ or other process

Whether or not any goods have been lawfully imported

Whether or not any goods are or were subject to any prohibition or restriction on their importation or exportation, and

Liability to forfeiture generally

Mr Vanhegan submitted that to grant the declarations sought would be an abuse of the process because if it is successful in the declaratory proceedings, MDL would surely wish to rely on the result in the Magistrates Court and that that would usurp the function of that Court. Alternatively, if MDL were not going to use the declarations in this way, then they served no useful purpose anyway and as Lord Woolf MR observed, they should be refused in any event.

Mr Vanhegan based his first submission on a House of Lords authority: Imperial Tobacco Ltd v A-G [1980] 1 All ER 866, an unlawful lottery case (the ‘Spot Cash’ contest case). The DPP had charged Imperial Tobacco with various offences under the Lotteries and Amusements Act 1976 but before the charges were tried, Imperial Tobacco issued an originating summons in the Commercial Court seeking a declaration that the scheme in question was lawful. One of the points in issue was whether the court ought to exercise its discretion not to grant a declaration because a court of co-ordinate jurisdiction (viz. the Crown Court) was already seized of the matter.

The House held that where criminal proceedings had been properly instituted and were neither vexatious nor an abuse of the process, it was not a proper exercise of judicial discretion for a judge in a civil court to grant the defendant in the criminal proceedings a declaration that the facts alleged by the prosecution did not in law prove the offence charged: to make such a declaration would be to usurp the function of the criminal court without binding it and would thus inevitably prejudice the criminal trial one way or the other. My attention was directed to the speeches of Viscount Dilhorne at pp 875-876 and Lord Lane at page 884. In this connection, Mr Vanhegan also referred to FSA v Rourke unrep per Neuberger J (19 October 2001, Transcript at pp. 17-18).

Mr Hobbs submitted that this submission was untenable in the light of section 139(6) and Schedule 3 of the Customs and Excise Management Act 1979 which provides that: Proceedings for condemnation shall be civil proceedings and may be instituted etc…. Moreover, in R v Kent Magistrates’ Court [2003] 2 All ER 631, it was decided by the Court of Appeal that condemnation proceedings should be regarded as civil proceedings not only for the purposes of the 1979 Act, but also for the purposes of Art 6 of the European Convention on Human Rights.

In my judgment, Mr Vanhegan’s argument on non-suit is misconceived. First, the condemnation proceedings were characterised by statute as not being criminal proceedings. Secondly, the condemnation proceedings were adjourned primarily to enable the High Court to investigate and adjudicate the allegation of counterfeiting before the hearing in the Magistrates’ Court. In this case, the ‘deployment of negative declarations’ would indeed have a ‘useful purpose’. So those points are in my view, without substance.

I was told that at pre-trial review, Pumfrey J was of the view that the burden of demonstrating consent was upon MDL and that of showing that the Consignment contained counterfeit cigars was upon HSA. That coincided with my own view on first coming to the case. With regard to the right to open, the judge left that to the trial judge to decide - if need be. In the event, Mr Hobbs opened and there was no difficulty over the sequence of speeches. With regard to the burden of proof however, the parties suggested approaches of a more subtle kind and I must deal with them.

Mr Vanhegan maintained that the burden rested on MDL on all the issues whilst Mr Hobbs submitted that as in any action for trade mark infringement, it was for HSA to prove that the Consignment contained counterfeit cigars and packaging. He also submitted that in the special circumstances of this case, because of the appalling lack of disclosure on HSA’s part, it would amount to an infringement of Article 6 ECHR to require MDL to have to prove consent. There is no doubt that the burden of proof on the consent issue is normally on the parallel importer: see for example the clear statement of the ECJ on this point in Davidoff SA (see below), § 54.

I shall first deal with Mr Vanhegan’s submission. Mr Vanhegan’s argument on burden with regard to the Part 20 proceedings was based upon what he submitted to be the inevitable procedural consequence of the structure of these proceedings – which were he said, provoked by MDL’s declaratory action. In my judgment such a formal approach to burden of proof ignores the realities of the situation. HSA is plainly MDL’s protagonist in both actions. Moreover, in approaching burden of proof, I have also to take into account the evidential tasks facing the parties. I remain of the view that the burden is upon MDL in the declaratory action, upon MDL in the parallel imports case and upon HSA in trade mark infringement action. However, in deference to counsels’ submissions I must, I think, go into the matter in a little more depth.

It will be recalled that the first of the declarations sought was directed to a finding that the Consignment did not contain counterfeit items and Mr Vanhegan therefore pointed first to some consequences of this. In such cases, as Lord Woolf MR said in Messier-Dowty Ltd (supra), the usual roles of the parties are reversed. This therefore pointed to the burden also being reversed. Mr Vanhegan noted out that in the proceedings in the Magistrate’s Court, the burden will be upon MDL to prove that the Consignment does not contain counterfeit material and thus in logic the burden (but not of course, the standard) of proof should be the same in these proceedings.

Mr Vanhegan’s principal authority was the well-known home taping case, Amstrad Consumer Electronics plc v BPI Ltd [1986] FSR 159 at 180-182. The facts were uncomplicated and (unlike here), were not in contention. The litigation concerned audio systems which incorporated a double cassette-deck feature enabling the purchaser to record from one tape deck to another at twice the normal play-back speed. This facility enabled domestic users of such equipment to copy tapes without the consent of the copyright owners and thus to infringe copyright. After complaint by the defendants, the claimants sought negative declaratory relief to the effect that by selling and advertising such products they were doing nothing illegal. The case eventually went to the House of Lords - but not on the issue of onus.

At first instance Whitford J, having reviewed a number of authorities on the presumption of innocence, stated that the general rule is that he who asserts a claim must prove it. He held that it was therefore for Amstrad to show that what they had done was lawful. This authority tells me therefore that in the circumstances of that case, where there were no facts to be proved, the burden remained on Amstrad throughout. The issue between the parties was essentially one of law, that is, authorisation and incitement.

It is not, I think, right to try to apply the issue of burden in Amstrad to the facts of this case. What is at issue in the Part 20 claim in the present case contains the two strands which I have already identified. Here the essential facts relating to the act of importation are indeed not in doubt; but those are not the only facts in issue in the trade mark infringement case. A substantial part of the entire trial was spent on one aspect or another of HSA’s so-called ‘indicia of inauthenticity’. As I have mentioned, these were put forward to show the presence of counterfeit habanos and packaging in the Consignment.

Though both ‘related’ in one sense to the importation of the Consignment, the two strands of the infringement case are quite distinct. The parallel imports case involves only minor dispute as to primary fac, but argument over the inferences to be drawn therefrom. Most importantly, there is disagreement on the application of EU law to those facts. The counterfeit claim on the other hand, is simply a trade mark infringement action in which the burden rests upon the trade mark proprietor to prove infringement. Moreover, HSA’s case also involves Mr Kenyon as procurer of the tort alleged.

Mr Hobbs made two submissions on this topic. First, relying on Stephens v Cannon [2005] EWCA Civ. 222(14 March 2995), he submitted that the Court should not resort to the burden of proof for the purpose of determining the rights of parties in civil proceedings unless the evidence at trial is complete and it cannot reasonably make a finding in relation to the disputed issue on the basis of the evidence before it, notwithstanding that it has striven to do so. In relation to both parts of this case I have reached my conclusions without resort to the finale envisaged in the authority upon which Mr Hobbs relies. There is therefore no need for me further to go into Mr Hobbs’ first submission.

Mr Hobbs’ second submission under this head invoked Article 6 ECHR in this way. In the parallel imports case, on the question of consent, Mr Hobbs accepted I think that in the normal course, the burden is upon MDL (see above). However HSA have not complied with the requirements of domestic civil litigation procedure in relation to the duty to give proper disclosure. Thus in this case to impose the burden upon MDL would constitute an abusive reliance on the burden of proof. He cited in support of this submission the decision of the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22 (30 June 2002) § 13 and that of the ECJ in Herbert Karner etc v Troostwijk GmbH [2005] ETMR 59 at 743.

In Davidoff SA, (see below), the leading authority in this field, the question of burden of proof arose in relation to inferences to be drawn from for example, the ‘mere’ silence of the trade mark proprietor to what it later complained of. The ECJ rejected those points however and expressed an unqualified view on burden of proof by reference to the general principle of unequivocal renunciation of trade mark rights by their proprietor – a topic with which I shall deal later in this judgment.

In relation to disclosure, HSA’s record was I agree, not good. I sympathise with Mr Hobbs’ retort that it has been too little and too late. But in my experience, this is not unusual with litigants used to the civil law jurisdictions where justice is administered without any great recourse to disclosure. Nevertheless, HSA’s performance in this regard is not entirely lacking. It has given disclosure for example in respect of its corporate relationship with the Casas. It has also given disclosure relating to the $25,000 limit on the value of cigars which an individual may purchase from domestic outlets. These and other matters touch on the issues raised by the parallel imports case and though they may not satisfy Mr Hobbs, I cannot just ignore them. Some disclosure has been given. In view of this and of the clear decision I have reached in relation to this part of the case, I need not make a finding on Mr Hobbs’ second submission.

In summary therefore, I consider the burden to be upon MDL to prove that HSA had given its consent to the marketing of the Consignment (Footnote: ³²) within the EEA. On the other hand, the burden is upon HSA to prove that any cigars (or packaging for cigars) within the Consignment were counterfeit at the time of their importation.

In the United Kingdom, trade mark infringement (so far as presently relevant) is governed by sections 9 (Rights conferred by registered trade mark), 10 (Infringement of registered trade mark) and 12 (Exhaustion of rights conferred by registered trade mark) of the Trade Marks Act 1994 (‘the Act’). In the European Community at large, infringement is governed by the provisions of Article 9 of Council Regulation 40/94 of 20 December 1993 - which have been transposed into national law. This will be referred to as ‘the CTMR’.

Sub-section 10 (1) of the Act provides as follows:

Questions have arisen in this case over when the Consignment was imported. The Customs & Excise Management Act 1979 s. 5(2)(b) (as amended) defines the ‘time of importation’ by air as follows:

I should next consider the question of knowledge of trade mark infringement (or innocence of it) since this arises in the counterfeit case. First, when it comes to import, export and sale, the statute contains no explicit notion of secondary infringement with knowledge. Knowledge comes into s 10 only in relation to the application of a registered trade mark to e.g. the packaging or advertising of goods (see s 10(5)). Mr Vanhegan submits that: ‘I never intended to do wrong’ is no answer to a charge of trade mark infringement. The very point arose in two reported cases in the 19^th century involving imported counterfeit H. Upmann cigars (which is one of the brands in issue in this case) in the late 19^th century: Upmann v Elkan 7 Ch 130 and Upmann v Forester (1883) 25 Ch 231. Nevertheless, in the present Act, the entrée is whether ‘a person uses a sign in the course of trade’. In Waterford Wedgwood PLC v David Nagli Ltd [1998] FSR 92, a case where inter alia trade mark infringement was an issue, the question of knowledge and consent of the defendant to the inadvertent and unknown re-import of counterfeit Waterford glass arose. Waterford alleged that the re-importation of the counterfeit glass into Felixstowe harbour (and its unloading) constituted acts falling within s 10(4) of the Act - mentioned above. Having referred to s 10 (4) (c) of the Act, Sir Richard Scott V.-C. said at p 105:

Rejecting a similar submission of Waterford on s. 10(4) (b), Sir Richard Scott described the submission as ‘grotesque’. Mr Hobbs has relied on this passage in relation to the facts (as he sees them) on which the counterfeit case is based. However, in the light of what is to come in the next section, it is to be noted that the re-importation in question was wholly unforeseen by the defendant and there was no evidence that the counterfeit glass in question was intended for sale etc within the UK. I shall return to this matter later in the judgment when I reach my conclusions on the counterfeit case.

The jurisprudence of the European Court of Justice contains a number of important so-called ‘parallel import’ cases (Footnote: ³⁴) in which (inter alia) the question of the trade mark proprietor’s consent has been in issue. This jurisprudence is based on the principle of the free movement of goods imported into the EEA. In practice, it is much concerned with the factual permutations surrounding particular imports and their impact on the working of that principle. This is another such case. Section 12(1) of the Act shows that the practical consequence of parallel importation may be the exhaustion of a trade mark owner’s rights to enforce a trade mark within the EEA. Whether HSA should be held to have consented to MDL’s import of the Consignment is a major issue in this case. Another issue involving the jurisprudence of the European Court of Justice is whether the cigars which are still detained by HMCE, have yet been imported. Thus, the meaning of the phrases ‘by the proprietor or with his consent’ and ‘put on the market’ is just two of the matters which I must consider in detail in due course.

Another threshold infringement issue arises on the present status of the Consignment. The Consignment is and always has been under the control of HMCE and no duty has yet been paid upon it. The question arises therefore whether any infringing act has yet taken place within the jurisdiction since s. 10 of the Act provides that infringement arises only by using ‘in the course of trade a sign which is identical with the trade mark…': see above. Moreover the same requirement is present in Article 5 of the Directive.

According to Mr Roughton (who followed Mr Hobbs on this point), whatever EU customs procedure the Consignment was deemed to be held under (and there is a good deal of detail in this respect which I need not go into), goods can only be released for free circulation in the EEA and thus be infringing if their customs status has changed from being non-Community goods (such as the Consignment is here) to becoming Community goods. That he says has not yet happened. The habanos are still in transit and the trade marks have never been ‘used in the course of trade’ in the EEA. Moreover, they could now be released from detention for transmission to another jurisdiction without the EEA. In this connection he drew my attention to two ECJ cases: SIOT v Ministerio del Finanze (1983) 731 and Wandel GmbH v Hauptzollamt Bremen (2001) ECR 1- 873.

Mr Vanhegan submits that the Part 20 Claim is not affected by this issue; all the cigars in the Consignment are at law already deemed to have been imported into the EEA. He relies on both English authority and more importantly, on a recent ECJ decision to support him.

I need only briefly refer to the English authorities. The first is that of the Court of Appeal in a copyright case: L.A. Gear Inc v Hi-Tec Sports PLC [1992] FSR 121 at 129. Morritt LJ held that importation must have occurred when the goods in question (shoes), were received into the territorial jurisdiction of this country. The shoes would then become subject to the jurisdiction of the court and subject to the provisions of the Copyright, Designs and Patents Act 1988 so as to constitute within the jurisdiction, an infringing copy. The Waterford Wedgwood case (supra) was also relied on. Sir Richard Scott V-C said at 102:

Neither of these cases quite supports Mr Vanhegan’s submission, since the goods there in question were not held under EU customs procedure by HMCE, a fact which gives rise to special considerations, as Mr Vanhegan’s next authority shows.

Mr Vanhegan relied strongly on Class International BV v Unilever NV , Case C-405/03 a recent decision of the ECJ, for the following proposition: there is already an act of importation when a person brings allegedly infringing goods into the jurisdiction for the purpose of, a fortiori with the intention of, putting them on the market in the EEA: § 34. The rider to this is that importation for trade mark purposes is not limited to the act of bringing goods through customs and/or paying duty thereon.

This case concerned goods in transit involving the well-known AQUAFRESH trade marks for toothpaste. Acting on the information of the trade mark owners, the toothpaste had been detained by the Dutch Customs in the Port of Rotterdam. It was thereafter secured in a customs warehouse subject to what is called the ‘external transit procedure’. In due course the importers claimed for the release of the goods - and for damages. It then emerged that the toothpaste in question (which had been bought in South Africa), was not counterfeit within the meaning of the legislation; it was what the ECJ often refers to as ‘original product’. In spite of this however, the trade mark owners opposed its entry into the EEA. The matter was referred to the ECJ for a preliminary ruling by the Gerechtsof te s’ Gravenhage, who ‘observed’ that it was not shown that there was already a purchaser for the goods either when they entered the Netherlands or at the time the goods were attached. A core issue was whether the mark AQUAFRESH was being used ‘in the course of trade’ within Art 5(1) of the Directive.

On its face, the decision involved goods being held under what is called the EU ‘external transit procedure’ or the EU ‘customs warehousing procedure’ neither of which (as I understand it), exactly apply to this case. For the purposes of EU customs law there are it seems, quite a number of categories of ‘goods in transit’, the goods in this case having apparently been designated ‘Home use with simultaneous entry for Free Circulation’ under Customs reference code 4000000. The importer and consignee on the air waybill was named as ‘Mr Craggs Masters Cigars’ c/o PVS Shipping, London Gatwick Airport’. It has never been in doubt that the Consignment was only intended for ultimate sale by MDL (in at least its larger part), within the UK. Research by counsel and the evidence of Mr Vandervord of HMCE has led me to think that for the purposes of applying Class International to the facts of this case, the exact status of the Consignment under EU customs law may not be important; what counts according to the ratio of the decision, is the purpose of the importation (if there be one) and the intended destination of the goods - and of these, there is no doubt in this case.

In Class International, a number of questions were put to the ECJ. The first was this: ‘Whether the trade mark proprietor may prevent the introduction into the Community under the external transit procedure or the customs warehousing procedure of original goods bearing the mark?’ The Court was of the view that ‘importing’ within the meaning of Art 5(3) of the Trade Mark Directive requires introduction of the goods into the Community for the purpose of putting them on the market therein : § 34. Importation is thus not limited to the act of actually bringing the goods through customs, duty paid. It also means that there will be infringement if the proprietor can show that at the material time, the goods were brought into EU customs control for the purpose of putting them on the market in the EEA (Footnote: ³⁵). The Court further held that ‘Release for free circulation’ was only one of the options open to a trader who brings goods into the Community: §§ 40 and 43. As long as that option is not chosen therefore, the mere physical introduction of those goods into the territory of the Community is not ‘importing’ within the meaning of the Article. The Court then turns to the issue of purpose, what it calls a ‘real and permanent risk’ of release of the goods in the EEA after customs clearance and finds that the existence of this is inconclusive as such in determining the question raised. Moreover, the proprietor cannot require the making of the ‘import’ innocuous conditional on the nomination of a final destination in a third country: § 50.

Another question was this: ‘Whether the trade mark proprietor may prohibit the offering for sale or the sale of original products placed under the external transit procedure or the customs warehousing procedure?’ The pragmatic answer seems to me to be directly applicable to this case (§ 60):

This finding, in fact, seems to me to follow the part of the Opinion of Advocate-General Jacobs, where he says

In this case, the domestic destination of all MDL’s importations of habanos (historic or in the case of the Consignment, proposed) is not in doubt and has always been clearly stated on the import documents (Footnote: ³⁶). Moreover there is no dispute that the whole tenor and purpose of all these transactions was to enable MDL, an English company, to sell cigars within this jurisdiction more cheaply than H & F’s retailers.

I need not dwell further on the point. Importation of the Consignment has been admitted on the pleadings. Furthermore, in my judgment, in the light of the Class International decision, for trade mark purposes the Consignment may be regarded as already ‘imported’. It has always has been MDL’s intention to offer the Consignment on the market in the UK, if it can. There is thus no scope either for saying that the trade marks have not been used ‘in the course of trade’ or for asserting that the Consignment may now legitimately be released for disposal in a non-Community country.

It stands accepted that HSA never gave express authority for the Consignment (or any of MDL’s historic consignments) to be sold in the EU. It is also clear on the evidence that by the date of the Consignment at least, Mr Kenyon knew that serious objection was being taken by HSA to his activities as an importer of habanos into the UK.

I shall go directly to the leading authority on the subject- an ECJ decision (which in fact incorporated three independent, but conjoined cases). Each case raised essentially the same series of questions relating to the circumstances which may give rise to a finding of consent. The cases, C-414/99, C-415/99 and C-416/99 are reported as Zino Davidoff v A&G Imports Ltd/ Levi Strauss v Tesco Stores Ltd and Costco (Wholesale) Ltd [2002] Ch 109, [2002] RPC 403. The claimants in the cases were the proprietors of well-known trade marks: DAVIDOFF for fragrances and toiletries and LEVI STRAUSS for jeans. In both cases, UK purchasers, observing an attractive price differential between the trade mark proprietor’s goods within and outside the EEA for the same genuine goods bearing the trade marks, purchased such goods outside the EU and sought to import and sell them in the UK. In the Davidoff case, the principal product concerned was a fragrance called COOL WATER. The defendants had openly purchased this in bulk in Singapore from an official distributor of the trade mark proprietor. The Levi jeans cases concerned a garment style called ‘Levi’s 501’ which Levi Strauss had consistently refused to sell to either Tesco or Costco (who were defendants) and to operate as authorised retailers. The garments complained of had been purchased from a variety of legitimate sources in the Americas each of which had themselves obtained them directly or indirectly, from authorised or approved sources of Levi Strauss garments – such as ‘accumulators’. The contracts under which Tesco and Costco purchased such jeans contained no contractual restrictions as to the markets into which the goods could be sold- though in one case (Mexico), the principal distributors had agreed that the garments would not be exported from Mexico. In each case, substantial quantities of the toiletries and the jeans in question had been so purchased and imported into the UK – far more than could be needed for personal use. Interestingly in present context, in the jeans cases, Levi Strauss had asked their authorised retailers to limit sales to a certain number of garments per customer-generally six.

The trade mark proprietors sued for infringement of their UK registered trade marks by importation, the claimants asserting that they operated a non-export policy in relation to their discrete marketing territories (such as Singapore). They alleged that this was a fact which was well known to their main local dealers - but not perhaps, further down the wholesale supply chain. The defendants’ riposte was (as here) one of consent by exhaustion of the trade mark proprietor’s rights. In the Davidoff case, there was also a subsidiary issue in that someone had removed or obliterated batch code numbers in whole or in part from the goods.

In argument, there were a number of submissions regarding the nature of the trade mark proprietor’s ‘consent’: see [44]. Most of the EU countries’ legal representatives proposed that the consent could be either express or implied. The French Government on the other hand argued for express consent only. The French view was rejected; consent could be express or in exceptional circumstances, be implied. The underlying reason for this was that the Community legislature has allowed the proprietor of the trade mark to control the initial marketing in the EEA of goods bearing the trade mark: see § [33]. In this regard the Court expressed the principle as follows § [44]:

The principal findings of the court, which were all based on the abovementioned jurisprudential principle, were as follows:

“If you’ve found a way around Davidoff” Laddie J was once quoted as saying (Footnote: ³⁸), “I will personally give you a medal..” Faced with the ingenuity and perseverance of the IP Bar, I would regard it as rash indeed to provoke such a challenge. Nonetheless,

In fact, in Hewlett-Packard v Expansys [2005] EWHC 1495 (Ch) in relation to the ‘consent’ issue, in §§ 8-12, Laddie J earlier emphasised the need for real consent to be given by the trade mark proprietor. He noted the difficulty facing a defendant where the consent is sought to be inferred from the acts of a third party and not the trade mark proprietor himself. He also stated that where the trade mark owner has objected to the use of the trade marks and the importer was aware of the objection, then even if there are other facts which might indicate the trade mark owner’s consent to parallel trading, a case of unequivocal renunciation of the trade mark owner’s rights will still not be made out.

Other authorities have been cited to the same effect: see for example the judgment of Alan Steinfield QC in Quicksilver v Charles Robertson [2005] FSR 8 at §§ 11-15. In fact the underlying jurisprudence of the ECJ in relation to consent dates back to before the Davidoff SA decision: see for example C-173/98 Sebago Inc et al v GB-Unic SA [2000] Ch 558.

The other topic of law with which I must deal is that of ‘economic linkage’ since Mr Hobbs argued that in Cuba, where a socialist economy prevails, it is idle to pretend that there is any real distinction between domestic commercial enterprises; they are all owned and controlled by the Party and the Republic. This was referred to as the ‘one size fits all’ argument. No relevant distinction said Mr Hobbs, could properly be drawn between HSA and the Casas (for example): they were in truth all one entity.

In support of his submissions, Mr Hobbs cited two ‘exhaustion of rights’ cases decided by the ECJ: Phytheron International SA v Bourdon [1997] ECCR 1-1727 Case C-352/95 and IHT v Ideal Standard [1994] ECR 1-2789 Case C- 9/93 (‘Ideal Standard’), both of which were concerned with imports between Member States viz the intra-Community movement of goods. Both cases turned on their facts. In the first case, the ECJ was not concerned with the question of an economically linked company putting goods on the market from outside the EEA. In my view, it is thus of doubtful relevance to the present case. In Ideal Standard, on the issue of ‘economic linkage’, the ECJ was basically concerned with the factual implications of ‘the essential function of a trade mark’ to that case. It held that there was economic linkage in the following situations: products put into circulation by the same undertaking, by a licencee, by a parent company, by a subsidiary of the same group or by an exclusive distributor. In all the situations envisaged, the ECJ identified control or the possibility of control over the quality of the products to which the trade mark was affixed, being vested in a single entity. As a result, the ‘essential function’ of a trade mark was protected (‘a guarantee that all goods bearing [the trade mark] have been produced under the control of a single undertaking which is accountable for their quality’: see § 13 and §§ 37-38). The ECJ held for example, that the relationship of assignor/assignee of a trade mark alone did not constitute a situation where exhaustion could occur. In my judgment, this decision was likewise not concerned with the situation of a retailer/franchisee who only had a right to sell goods to which the trade mark had already been affixed by the proprietor - even when the proprietor prescribed some of the conditions of sale e.g. the type of invoice to be used.

Some of the facts relevant to this part of the case have already been stated. I must however deal with the following: the relationship between HSA and the domestic cigar outlets (such as the casas), the limit of $ 25,000 said by HSA to be imposed on non-commercial domestic sales through those outlets and Mr Kenyon’s troubled relationship with HSA prior to the purchase of the Consignment.

Cuba is a socialist republic having a centralised command economy. A sortie into the workings of the economy of one of the remaining ‘Communist’ countries may seem an unusual topic in a judgment in a trade mark infringement case. It has however been made necessary because of Mr Hobbs’ submission to which I have already referred viz. that since all aspects of the economy in a socialist country are centrally planned, organised and run, it is idle to pretend that HSA did not actually know of, still less approve and encourage the Casas (and other local outlets for export quality habanos), freely to sell as many cigars as possible to individual visitors for export. It was he says, in truth overt state policy to do so since this maximised hard currency returns for domestic sales of habanos by tapping the wallets of visitors, tourists and foreign residents in Cuba – and it seems anyone in Cuba in possession of hard currency.

Mr Hobbs sought to show that though HSA may not in theory own the casas and other domestic outlets, the evidence shows that they are no more than the obedient servants, indeed the de facto agents, of HSA. Ownership of all commercial ‘enterprises’ in a Communist economy it is argued, is not to be regarded in the same way as it is in a capitalist economy. The State in truth owns and controls everything; no one steps out of line without risk.

This is how the issue is pleaded in the Amended Particulars of Claim (Footnote: ⁴⁰):

In a socialist economy, said Mr Hobbs, the economic agencies of the state all work together – the more so as far as the tobacco industry is concerned (see above). Thus he said, regardless of who formally owns the Quinta Avenida Casa (actually an entity called ‘Cubalse’ – see above and below) it is in truth totally under the control of HSA, the proprietor of the trade marks. MDL therefore pleads that the Consignment (and thus the historic consignments) were in fact purchased from HSA (Footnote: ⁴¹). He also points to evidence to demonstrate that such control is not merely on the political level but extends to practical details such as labelling, sales invoices and so forth. In its reply to the defence to the Part 20 proceedings (Footnote: ⁴²), HSA has denied the relevant connection with the Quinta Avenida Casa:

In the light of the view I have taken regarding the meaning of the phrase ‘economically dependent’ in the light of ECJ jurisprudence and its application to the facts of the case, I have not found it necessary to dwell at any length on the economic realities of today’s Cuba- in spite of the evidence of experts on both sides on the issue and of Mr Hobbs’ eloquent submissions on the subject. I shall nonetheless briefly address the subject.

Cuba is a country which seems to have had a number of wars and revolutions since it gradually liberated itself from its erstwhile colonial master, Spain. This was a slow process during which there emerged the most revered name in Cuban history, José Martí. Following full independence at the turn of the last century, there followed a number of governments (or dictatorships) the penultimate having been that of Dr Batista who, in 1959 was deposed after another revolution organised by the Castro brothers, Fidel and Raul, Ernesto ‘Che’ Guevara and others. The government established as a result of this change seems at first to have been primarily nationalist in intent but by the early 1960’s it had become unambiguously Marxist-Leninist in leaning. To day the political philosophy of the State is still based on the socio-political views of Martí, Marx, Lenin and of Fidel Castro himself. It is in other words, a true ‘Communist’ country. But says Mr Vanhegan, that is not the end of the enquiry; genuinely independent economic activity exists in Cuba within the ambit of a socialist regime: these are the Corporaciones Cubanos. HSA has led evidence (Sr Garrido - Havana based) to prove it. MDL has also led evidence (Dr Jaime Suchlicki - Miami based) to gainsay it, as being a sham. At moments it appeared that the Court might perforce be required to enter the polarised ring of Cuban politics in this regard. However the jurisprudence of the ECJ in this area, in particular the decision of the Court in the Davidoff case, makes it unnecessary for me to do so. I can therefore move on to the facts as I see them.

I have already described HSA but would again mention that Altadis SA, a Spanish company, is an active 50% shareholder in it (Footnote: ⁴⁴). I therefore agree with Mr Vanhegan that it is no mere organ of the State and is run on a commercial basis (Footnote: ⁴⁵). Moreover, it was not in dispute that HSA is the only organisation in Cuba which is authorised to export habanos: see Sr Garrido’s first Witness Statement §§ 20-23. Within Cuba, habanos are sold through a variety of retail outlets and not directly by HSA. Sr Garrido said that under Cuban law, these outlets are neither subsidiaries nor in any way associated companies of HSA. Mr Hobbs did not accept this. In a socialist economy, he said, the State owns and controls everything and such differences as may appear to exist between Cuban commercial entities are at best titular and are in practice merely cosmetic. As Mr Kenyon put it in cross-examination (Footnote: ⁴⁶):

Mr Hobbs based much of this part of his case upon the expert evidence of Dr Jaime Suchliki, to demonstrate the realities of Cuban commerce and industry. Dr Suchliki, who left Cuba in 1960, is currently director of the Institute for Cuban and Cuban American Studies at the University of Miami and has expertise in Cuban economic and social policy and history. Whilst I found Dr Suchliki to be trying to assist the Court, I felt that as an expatriate Cuban, he may not have been fully and directly aware of how Cuban commercial entities currently function (Footnote: ⁴⁷). Moreover, as Mr Vanhegan pointed out, Fidel Castro has few friends in the south Miami area and Dr Suchliki is certainly not one of them: see his article in The Future of Cuba Exhibit X5 (Footnote: ⁴⁸). I have therefore received his evidence with some reservation.

In fact, under cross-examination, Dr Suchliki admitted that by August 2004, the actions of joint venture companies such as HSA had become ‘semi-autonomous’ with only limited direct state control: D3/326. He also admitted to having no direct knowledge of the day to day control or management of either HSA or the Quinta Avenida Casa: D3/331-334.

I shall next turn to the Casas (and other retail outlets) in Cuba. ‘La Casa del Habano’ is a trade mark owned by HSA. There are a number of Casas both within and outside Cuba. Though the idea of setting up the casas seems to have originated with HSA, no retail outlet in Cuba is actually owned or operated by HSA. Sr. Garrido’s evidence shows that in every case, HSA enters into a type of franchise agreement with the owner or operator of the outlet whereby the owner pays an initial fee and an ongoing royalty to HSA. HSA supplies boxed or packaged cigars to these outlets together with printed books of special watermarked invoices (the facturas) to record purchases to individuals. An outlet has no right (or indeed, no need) to affix or alter the trade marks and holograms which have already been applied by or on behalf of HSA or to re-package the habanos which it sells. The casas do hold monthly meetings with HSA and on occasion, also with the Cuban customs to discuss matters of mutual interest. But in itself these are not I think, of significance.

Most of the retail outlets for habanos in Cuba are owned by a Cuban company named Caracol. Two, however, are owned by another Cuban company (within the Cubalse Group of companies) called Clubes & Restaurantes Continental SA (ie ‘Cubalse’). The Quinta Avenida Casa is one of these. Sr Garrido has given evidence that both Caracol and Cubalse are quite separate legal entities to HSA and in respect of their transactions with customers, are entirely independent of it (Footnote: ⁴⁹). For example, the casas do not send copy invoices back to HSA (Footnote: ⁵⁰) nor does HSA control the way they do business (Footnote: ⁵¹). Sr. Garrido has produced the relevant agreements which HSA entered into with Cubalse: the Franchise Agreement and the Tobacco Supply Agreement (Footnote: ⁵²).

The Franchise Agreement contains the following clause (11.2): ‘Under no circumstances may the Franchisee re-sell the contractual products to another territory or re-sell these as a wholesaler.’ This is not therefore even an exclusive distribution agreement in Cuba. The Tobacco Supply Agreement is quite explicit; it simply grants Continental a right to sell habanos and to use the Casa del Habano name in two outlets.. Clause 8.2 provides:

Having regard to this, it is not necessary for me to consider what managers and employees of the various official outlets may or may not have told Mr Kenyon or Mr Craggs and which were later recorded in the now withdrawn and contradictory witness statements of Cuban witnesses.

In my judgment, MDL’s pleaded case is insupportable. Neither HSA nor the outlets are organs of the Cuban State. Nor are the outlets ‘economically linked’ to HSA within the meaning of ECJ jurisprudence. None of the consignments were purchased from the trade mark owner and in the case of the Consignment (which it will be recalled was in any event purchased by Retail Direct Ltd), there is no evidence that that company was even re-imbursed by MDL.

The effect of this section finds resonance in the counterfeit case which, for convenience, I shall raise at this point. Sr. Garrido told me (and I accept this evidence) that the Quinta Avenida Casa has been receiving all its supplies of habanos from HSA’s domestic warehouse since 2003- that is, since at least the date of the first historical consignment in June 2003 (Footnote: ⁵³). Thus what that casa sells must be genuine and moreover it must carry HSA’s domestic hologram. I shall go into the evidence relating to the implementation of Mr Kenyon’s purchase of the Consignment in due course - which was as already noted, carried out by Mr Craggs on his (or MDL’s) behalf - in the company of the Quinta’s salesman Sr Osmany Rios (Footnote: ⁵⁴). However, absent any evidence of dishonesty at the Quinta Avenida Casa, it is clear that what Mr Craggs had loaded into an awaiting Continental company van after his selection in the Casa for immediate transport to Havana airport, would be highly unlikely to have contained counterfeits. This in my judgment is an inevitable conclusion reached independently of the confirmatory evidence of Mr Craggs on the point (see below).

Finally, in spite of Mr Kenyon’s (and to a lesser extent Mr Craggs’) belief that HSA knew about and condoned the purchase of the Consignment before it left Cuba, my examination of the evidence simply does not support this. I shall look at the procedure with regard to the facturas and the Customs procedures at Jose Marti Airport in the next section, but there is also no evidence that the Cuban Customs are obliged to report to HSA on individual purchases either. Sr Garrido said that in fact the Customs at the airport have ‘hundreds’ of such transactions to process every day: D11/1232.

A related pleading of MDL’s was to the effect that the Quinta Avenida Casa was acting on behalf and with the authority of HSA. In aid of this, MDL do not rely on any express consent. They point to the statements originally made by a number of employees of the official retail outlets for Mr Craggs- but later withdrawn. They also pointed to the $25,000 limit imposed by HSA as a maximum amount for each purchase of habanos from an official outlet by an individual for (so HSA say) non-commercial use. I shall deal with the $25,000 limit below. But in my view, in the light of the findings I have already made, this pleading takes the matter no further.

It is also pleaded that HSA/the Government of Cuba assisted in the process of exportation: Amended Particulars of Claim § 24(c). This I think has most to do with the use of the Continental company van to transport the Consignment to the Airport (Footnote: ⁵⁵). Mr Craggs paid the driver $25 to do this and this was not a tip; it was a ‘normal transaction’: see Mr Craggs in cross-examination D2/117-118. Caridad Gonzalez the shop manageress also gave evidence on this point (which was changed) saying that the van so used did not belong to the Quinta Avenida Casa:G/4/§ 9. On the evidence, MDL’s assertion is therefore wrong (Footnote: ⁵⁶). Looking ahead again, and whilst on the subject of the van and the transport of the Consignment to the Havana airport, I will record here that there was some early attempt on Mr Vanhegan’s part to suggest that even if what was loaded into the van was innocuous, there might yet have been some ‘switching’ of cigar boxes and bribery of the driver on the way to the airport. Mr Craggs supervised the loading of the Consignment into the van. He arrived at the airport just before the van arrived in a hire car to supervise the unloading at Customs. I have heard Mr Craggs on this point in cross-examination and record that the suggestion that there was interference with or infiltration into the Consignment en route has no merit whatever, the more so as the Consignment was accompanied by an employee of the Quinta Avenida Casa, one Juan Carlos. Indeed by closing, Mr Vanhegan did not appear to rely on this possibility of spurious infiltration of the Consignment.

I shall next address HSA’s $ 25,000 limit on each individual sale ‘for personal consumption’ at an official outlet in Cuba. This says Mr Vanhegan, was official policy at HSA from before the time when the Consignment was purchased (Footnote: ⁵⁷). Mr Hobbs first says that from the meagre disclosure, this apparently important point of policy is at best unclear. He also says that a normal purchase of habanos involving such large sums of money would result in a consignment of between 5000 and 10,000 cigars - an absurd amount for individual consumption (Footnote: ⁵⁸).

First, the correct figure is actually 25,000 CCU (a Cuban unit of convertible currency) which at the relevant time was worth I believe, nearer $ 27,000. Secondly, I note that in spite of their present argument on the point, MDL in fact paid less than this sum in respect of all of its consignments –even if one does not take into account the machine-made cigars in those consignments.

In Upmann v Forester (supra), Chitty J was concerned with the importation (albeit innocent) of 5000 counterfeit H. Upmann cigars which were said to have been ‘for family use’ and which might thus, so Mr Forester hoped, enable him to escape the costs consequences of infringement. This is what Chitty J said about the matter (at p 236):

So here, the phrase used by HSA (‘personal consumption’) is not amenable to a precise definition. Fanciful justifications for so large a purchase were suggested by HSA’s witnesses (Footnote: ⁵⁹) but I reject these as being quite unrealistic. The notion of the individual nominated on the factura puffing his way through 8000 cigars before they deteriorated, has about it more the quality of a domestic eruption of Mt Etna than of the quiet enjoyment of an occasional habano. So I agree with Mr Hobbs: the existence of HSA’s $25,000 limit (Footnote: ⁶⁰) points to consent to the subsequent commercial disposal of the cigars in the hands of a purchaser - or at the least, the turning of a blind eye to the most natural consequence of such a sale by the retailer in Cuba.

In the parallel imports case, the applicable law is of course European Law. Nevertheless, in response to remarks about the illegal exportation of cigars made in Mr Vanhegan’s opening (Footnote: ⁶¹), Mr Hobbs’ case was that in relation to the Consignment, Messrs Kenyon and Cgaggs had done nothing illegal under Cuban Law and he cross-examined Sr Garrido on the point. At this juncture, Mr Hobbs produced for the first time the relevant Cuban statute on exports: Law Decree No 162 on Customs and in particular, Ch II and III (Footnote: ⁶²). When confronted with this, Mr Garrido told me that he had had quite ‘forgotten’ to mention this statute in his evidence-or in disclosure (Footnote: ⁶³). Apart from anything else, Mr Garrido’s standing as an expert in Cuban Law was in my view somewhat diminished by this omission. He did nonetheless agree that the Consignment been processed by Customs at Havana Airport in accordance with the Law.

However all this is some way from proving (as MDL must) that HSA had thereby unequivocally renounced the benefit of its all its major trade mark rights in the EEA within the scope of the Davidoff SA decision. The implied consent foreseen in that and in subsequent authorities has to be exceptional, it will be recalled. Moreover, it is not inevitable that so large a consignment will be sold into the EEA or as Mr Vanhegan pointed out, that every purchaser will take up his full quota. I therefore detect here no clear let alone unequivocal indication that HSA has thereby renounced its right to the first opportunity to benefit from the exclusive and valuable trade mark rights which it holds (and otherwise exploits through its distributors) within the EEA.

On the issue of consent, it is relevant to record that some time before the purchase of the Consignment, both Mr Kenyon and Mr Craggs had been made well aware of HSA’s hostility to their attempts to use the trade marks for the purpose of importing habanos into the UK: D8/872 and 875-876.

Furthermore, as a relatively minor matter under the issue of consent, I have noted the evidence relating to the High Court action taken in November 2003 against Mr Kenyon’s friend Mr Casdagli who was the defendant in another ‘parallel imports’ case brought by HSA and H&F in respect of cigars imported into the UK from Central America: see X 13. Mr Casdagli gave evidence and seemed a fair witness. He said that Mr Kenyon was told of all the material facts relating to that case: D7/695-696.

My conclusion is that MDL have failed to prove that HSA consented to the importation of either the Consignment or any of MDL’s historic consignments. I have already mentioned that this conclusion is irrelevant to the detention of the Consignment by HMCE (Footnote: ⁶⁴), which is the mainspring of the declaratory action. I have also set out the relief sought in the declaratory action (see §47 above) from which it will be seen that the first four paragraphs relate specifically to declarations which concern the counterfeit case whereas the last two paragraphs relate to trade mark infringement at large. In the light of my conclusion regarding the counterfeit case (to which I shall turn in a moment), the declaratory action fails in all but the last two paragraphs of the relief sought. In the circumstances, Mr Vanhegan has submitted that the declaratory action must therefore fail in its entirety. Mr Hobbs QC disagrees that it succeeds in all but the last two paragraphs. This disagreement emerged during the period in which this judgment lay in draft with the parties’ legal advisers, unpublished and embargoed, for the purpose of correcting clerical and other errors. I accept that the point may not be academic and have decided to defer reaching a conclusion on the point until after I have heard counsel’s submissions as to the final form of order.

Since these items come into various parts of all the cases, it would be as well to record my findings on them now before coming to the counterfeit case. I have mentioned that HSA established a number of anti-counterfeiting measures prior to this action, of which seals, holograms and sales invoices were the most important.

Seals First I shall consider the green Cuban Government seals which usually cover the corner of cigar boxes and appear to serve two purposes. First, they act as anti-tamper devices, but more importantly, they guarantee the quality and authenticity of the habanos within and are backed by the Cuban Government. The seals are usually engraved, have a watermark visible under ultraviolet light and carry a unique numeration in red print. To the best of my knowledge they have been in use for a long time. They are applied by the cigar manufacturer and merchandise which is sent to HSA’s warehouse has these seals already affixed (Footnote: ⁶⁵). In their counterfeit case, HSA made no use whatever of the unique numbering on the seals of guarantee. Indeed, the only evidence in the case with regard to these seals is that even in the allegedly counterfeit boxes, the seals were apparently genuine. Moreover, it was not suggested that any relevant seals had been stolen.

Puzzled by this, I was prompted during the trial to enquire of the appropriate expert for HSA, Sra Lopez, what function the seals therefore had. Her reply was one of the more surprising answers of the case: the seals of warranty apparently account for nothing: D11/1217-1220. If Sra Lopez’ answer is truthful, the process of sealing boxes of habanos is thus an elaborate cosmetic exercise having no security or other purpose whatever. Furthermore, its apparent unimportance is at variance with what is written in the Guide at p 44 - in which Sra Lopez was a collaborator.

Holograms According to HSA’s initial evidence at any rate, this is a most important security feature. HSA divides its warehouse at El Cerro (and now at Guanabacoa) to which all the quality cigars go, into two parts. Habanos destined for export via its appointed distributors go to one part whereas habanos for domestic sale go to another, the latter being sold via (for example) the casas for hard currency. The entire Consignment came from this warehouse. By law, all quality habanos sold in Cuba must have affixed to their packaging, a specially designed, square green hologram. Like the seal, each hologram bears a unique number. These holograms are affixed only after a rigorous in-house quality control check by HSA. I was also told that a hologram cannot be removed from the packaging without leaving a visible mark. The importance of holograms in the fight against counterfeiting was stressed both by Sr Garrido (C1/5/16-19 and 30) and by Sra Lopez (C1/2/31-64) ,

In view of this, MDL formed the view that HSA must hold records for the hologram numbers on the boxes of cigars which are now said to be counterfeit. However no disclosure was given of such records in spite of repeated requests by Messrs Withers. Sr Garrido’s performance in this respect was particularly unsatisfactory: see his second witness statement G/2/12. The records could have been produced, he had the authority to require them to be produced and yet they were deliberately not produced. He also confirmed that no hologram seals had been stolen. On the other hand, the holograms on all the boxes which were examined by H&F were found to be genuine, even those containing allegedly counterfeit cigars or having counterfeit packaging.

I have mentioned that the hologram is placed on the packaging only after rigorous quality control at the ‘national’ warehouse. As noted, HSA have based their counterfeit case on ‘indicia of inauthenticity’ which they say would never have passed such a quality control regime. Not surprisingly Messrs Withers also asked for disclosure of relevant quality control records. These were never produced and furthermore, Sr Garrido had no idea of the level of rejections resulting from this exercise or the reasons for such rejections: D6/645-646. H&F also apply quality control in this country and in cross-examination, Mr Chase agreed to make records of national rejection available. On Day 6 of the trial H&F produced a small collection of documents relating to the year 2004 which described ‘write offs’ due to damaged ends and tubes, pilferage and ‘weevil’, none of which feature among the indicia of inauthenticity.

Facturas Sales invoices (facturas) are secure receipts specially printed for HSA (but not issued by them) for use in the casas and other domestic sales outlets and are another security feature relied on by them. They bear the transverse watermark HABANOS which is visible only under ultraviolet light. There is a space at the top of the factura for the name and passport number of the customer-thus ensuring that sales are only made to individuals. On making a purchase, the sales outlet retains a copy of the factura and gives the customer two copies, one for his personal retention, and the other for presentation to the Customs for verification at the point of export. Though the facturas for the purchase of MDL’s cigars featured in the evidence, nothing turns on them as such since it was not suggested that they were either false or inaccurate,

Before leaving this topic, I would make two further observations. First, the ‘indicia of inauthenticity’ include allegedly counterfeit ‘packaging materials’ (see below). How, I asked, could this have arisen in Cuba? Mr Vanhegan thereupon produced fresh evidence to show that counterfeit materials (holograms, bands, inserts etc) relating to the presentation of Cuban cigars could be obtained via the internet from the USA: see Exhibit X 8. As anticipated, Mr Hobbs protested about the late and unexpected presentation of this material. I record that I was not impressed with this evidence. In addition to its late appearance, it seemed to raise more questions than it resolved. Secondly, on the subject of holograms, within the Consignment at PBS Crawley, H&F’s representatives have identified a box of Bolivar Royal Coronas which bears no hologram and in addition, has no trace of a hologram having been removed from it. In view of what I have already said, it should certainly not have been within a consignment purchased in Cuba. The only party who could legitimately have been in possession of such a box in this country is H&F who receive such boxes prior to the affixing of their own special H&F ‘national’ seal. I have found the presence of this box to be something of a mystery and will return to it in the section which follows.

This I believe became the major part of the case so far as time at trial was concerned. Having regard to my decision on the parallel imports case however, I shall deal with this aspect of the litigation in rather less detail than I might otherwise have done. The counterfeit case is based on ex parte examinations and experiments performed by H&F on samples of habanos and packaging therefor which were removed by H&F (alone) from the Consignment - with permission of HMCE.

I have already to a sufficient extent described the arrival of the Consignment as cargo aboard a Cubana flight in August 2004. The entire Consignment was never analysed for the presence of counterfeit material save in two respects: the presence therein of packaging not bearing an HSA hologram and the presence of boxes on which the printed markings had been rather crudely enhanced in ink. In relation to these factors, I invited the parties’ solicitors to conduct a full examination during trial, since these appeared to me (for reasons to be explained below) to be prima facie counterfeits. As a result, no further examples were found in either category. In the Consignment there is thus one example of a box lacking a hologram and two boxes bearing ink enhancement to the printing. I shall return to these in due course.

HSA/H&F HSA/H&F’s principal witness to the sampling was Mr George Atkinson who has been a consultant with H&F since 2000 having been employed by HMCE for some 39 years as a Senior Investigation Officer. For reasons which will appear, I did not find Mr Atkinson to be a witness in whom I had confidence. Sra Ana Lopez was one of the experts responsible for the analysis of the samples taken from the Consignment. She is a Cuban citizen who, since July 2003, has been a corporate director of H&F. Among her duties is the investigation of quality problems in the supply of products from Cuba, particularly in relation to packaging. Her connection with the Cuban tobacco industry dates back to childhood. She worked for Cubatobacco (the predecessor to HSA) and has worked with the Partagas and H.Upmann factories (only). She has two degrees in economics and whilst employed by Cubatobacco has held senior positions including that of Director of Marketing. For present purposes, her particular expertise is in relation to the design, artwork and production of materials used to make up the packaging for the various brands of habanos. Significantly, she was in charge of the holograms and the Government seals of guarantee on the packaging and of the facturas. Sra Lidia Marcio was the expert responsible for the evidence relating to the allegedly counterfeit cigars themselves. She is also Cuban and is Jefa de la Brigada in the rolling ‘gallery’ of the Romeo y Julieta cigar factory in Havana. She supervises the work of 50-60 cigar rollers in the gallery and has had many years experience in the preparation of tobacco for habanos and in the rolling and blending of cigar tobacco – indeed she was the only witness having direct experience of making habanos. She even rolled a large habano for the benefit of the Court – which I would add, has become a Court exhibit. I found both these ladies to be thoroughly conversant with their areas of expertise but by the standards normally expected of witnesses in UK courts, both were in my view partisan.

MDL Sr Carlos Moreno has worked in the tobacco industry for some 23 years. He is Spanish and is Director of Promotions for Occidental Cigars SA of Valladolid. Prior to that he was chief executive of Cohiba Ibero-Americana, a specialist quality cigar company. He has participated in courses relating to the identification of counterfeit cigars. Sr Alberto Lucas was also Spanish and is proprietor of a specialist tobacco shop in Salamanca. He has been involved in the cigar industry for 18 years and has visited Cuba on a professional basis nine times at the invitation of both HSA and Altadis SA. In fact 95% of the cigars he deals in are purchased from Altadis SA. He also has had training in the detection of counterfeit cigars. These expert witnesses were belittled by Mr Vanhegan as lacking direct experience of the Cuban tobacco industry, but I was not impressed by such criticism. Both gentlemen seemed to me thoroughly conversant with their subject and unlike HSA’s witnesses, were completely independent - and gave evidence accordingly. I found them to be reliable experts.

There was a substantial dispute as to what happened at the PBS warehouse in Crawley when the two samples were drawn from the Consignment. In brief, the facts I find to be as follows. The first sample was drawn by Mr Atkinson on 6 September 2004. In all he selected 29 boxes of cigars in the presence of Mr Hickey of HMCE and Mr Black of PBS. These boxes were taken to H&F’s offices at Hurlingham for inspection and analysis. A list of the items removed is at D2/11 and the notes of the inspection that followed is at D2/10. Against all the entries in D2/10 one sees a tick recording the fact that all the seals (both Government seals and holograms) were in order. Mr Atkinson made a record of the code numbers of the seals which he says he gave to Sra Lopez who also found all the seals to be ‘apparently genuine’: D/11/1198. However, Sra Lopez for some reason threw away Mr Atkinson’s list of seal numbers. She said (D11/1203-1204): “I threw it out. It had no sense. This sample was not in any use.” And later “[Atkinson] keeps his own papers I am not in the habit of keeping papers.” However, Mr Atkinsons’s record of the inspection was nonetheless retained – see above. This sample of 29 boxes was returned to the Consignment (see below) on 13 September 2004 when a second sample was drawn. We thus arrive at this position: by getting rid of the key to the seal numbers, H&F have made it impossible for anyone to know precisely which boxes of cigars were removed and inspected on 6 September 2004. Mr Hobbs submitted that this was thoroughly unsatisfactory and I agree with him. But it was not the only criticism made by him of the sampling exercise.

On 6 September 2004, Mr France of HMCE sent a fax to Mr Atkinson requiring the 29 boxes to be ‘returned forthwith’ adding that ‘It is patently obvious that a whole box is far in excess of a small sample’. In fact of course, 29 boxes had been uplifted by Mr Atkinson-who I would have thought as an ex-HMCE officer, should have known better.

On 13 September, the 29 boxes were returned to PBS by Mr Atkinson and Mr Hambidge, these having lain open at H&F’s offices in the meantime. The return of the boxes was witnessed by Mr Black of PBS, by Mr Kenyon, and by Ms Iqbal, Mr Vandervord and Mr Jagpal of HMCE. The manner of the return of the boxes was the subject of an acute conflict of evidence. Mr Atkinson said that the 29 boxes remained in the H&F Range Rover until after a further 31 boxes had been removed from the Consignment by Mr Hambidge and (apparently for the first time) placed in approved HMCE sealed bags. He said that at this point Mr Hambidge returned the 29 boxes to the consignment (see D/10/1083-1085). This was not however Mr Vandervord’s recollection (see D11/1149). The incident was not, I think, recorded in any witness statement and was certainly not put to Mr Kenyon. As I have said earlier in this judgment, Mr Hambidge was not called to give evidence- in spite of the fact that he had made a witness statement for the purposes of HMCE’s detention procedure. Mr Kenyon did however strongly object to the release of a further 31 boxes of MDL’s cigars to H&F and not only said so at the time but telephoned Messrs Withers to seek their views. The HMCE seal number on the bag was however duly recorded: no 00059832. The cigars were then taken (there is a dispute as to which vehicle they were taken in) to HMCE offices at Gatwick where the plastic bag was opened so that Mr Hambidge and Mr Atkinson could inspect the contents-in the absence of course of Mr Kenyon. It was later resealed under seal no 00059833 and taken off to H&F’s offices for analysis. Mr Atkinson’s list of items inspected on 13 September was eventually sent to Messrs Withers in March 2005.

Next, on 20 September 2005, a meeting took place at H&F’s offices which was attended by Mr Vandervord of HMCE and by Messrs Hambidge and Atkinson and by Sras Marcio and Lopez. No one on MDL’s side even knew of the meeting. The sample bag was, it seems, opened, the contents were inspected and the bag was re-sealed under no 00059835. Where asked Mr Hobbs, was there a record of seal no. 00059834?

Mr Vandervord made no record of the seal number that was broken open at the commencement of the inspection – or indeed of anything that happened at the time because, he said, he was relying on Mr Atkinson to do this. The only contemporaneous note of that number is at the top of the first page of Mr Hambidge’s manuscript notes: Y/2 69-72. Inspection of the original of the manuscript notes led to further dispute, Mr Hobbs submitting that the number 00059834 was visible with the aid of a magnifying glass-thus indicating that the bag containing the 31 boxes must have been opened between 13 and 20 September 2004 whilst it was supposed to have been at H&F’s offices. Mr Vandervord told me that sequential sealing numbers were not always used in such circumstances; the seal used was the first seal that came to hand in the bag of HMCE seals which were to hand.

Further inspections were made giving rise to further controversy. For example, on 28 January 2005, Mr Maycock and Miss Harding of Withers made an inspection at PBS with a Mr Overington of HMCE. On this occasion, only 28 boxes were found in the sample bag and there were further difficulties over fresh seal numbers. Another ex parte inspection was made on 17 March 2005 at the PBS warehouse (after three more inspections each showing 28 boxes in the sample bag). Present were Mr Gallagher of Mishcon de Reya, Mr Hambidge and Mr Atkinson on behalf of H&F and Mr Vandervord and Mr France on behalf of HMCE .The solicitor’s attendance note records (Footnote: ⁶⁶) that this inspection was convened specifically ‘to determine the contents of the sample bag following comments made in the statement of John Maycock.’ The attendance note also records the boxes inspected were checked against ‘the list of seal and hologram numbers recorded during the inspection at H&F on 20 September 2004.’ In spite of this, Mr Atkinson denied that any list was made of the seal and hologram numbers of the 31 boxes inspected on 20 September 2004. It is thus impossible to establish precisely which 31 boxes were inspected on 20 September 2004. I shall have more to say about the 17 March 2006 inspection below but in the end, the business of the day resulted in the original count of 31 boxes being restored to the sample bag (a ‘re-constitution’) apparently by reference to Mr Atkinson’s abovementioned 20 September list – the three missing boxes having for some unexplained reason been found within separate packing cases comprised in the Consignment (Footnote: ⁶⁷).

Meanwhile, Sras. Marcio and Lopez had carried out their inspections and analysis of cigars which form the basis for their ‘indicia of inauthenticity’. The remains of the cigars which Sra Marcio had dismantled and analysed to determine whether the correct blend of tobaccos (see below) were present were mixed all together in one plastic bag (which is also being kept at Messrs Lovells), thus making it impossible to check the results of her composition analysis.

. I have said that Mr Gallagher’s attendance note for 17 March 2005 records that the checking was done with the aid of the ‘list of seal and hologram numbers recorded during the inspection at H&F on 20 September 2004.’ I have also said that if Mr Atkinson is to be believed, there was no such list. Mr Hobbs subjected Mr Gallagher to vigorous cross-examination on the contents of his attendance note and ancillary documents (Footnote: ⁶⁸): (D13/1482-1521). It was in relation to the outcome of this cross-examination (particularly about the ‘missing’ check list of 20 September 2005 - which was mentioned by Mr Gallagher in his attendance note no less than four times), that I made the comment I did about Mr Gallagher’s poor performance as a witness (Footnote: ⁶⁹). Mr Gallagher admitted making several mistakes with the contents his attendance note. He insisted that when he wrote the note, he must have ‘meant’ the list of 13 September (which exists – see §139) and not a list of 20 September 2005; yet it is not clear that he even knew about the list of 13 September when he wrote what he did. He sought to excuse himself by saying that he was in a hurry to get the note done for Court on 18 March 2005. Mr Gallagher was, I think, well aware of how sensitive and important his task was on this occasion and in my view his professional performance fell short of the usual high standard expected of a solicitor.

Mr Gallagher’s attendance note was also put to Mr Vandervord who agreed that the boxes were checked against a list made on 20 September 2005 : D11/1171-1172

Mr Maycock notes in his third witness statement that this ‘re-constitution’ of the 31 boxes in the sample bag ’miraculously provides explanation for these anomalies’: C2/8/§ 7. He also noted in the same witness statement that upon enquiry, it transpired that even PBS had made no record whatever of any of these inspections.

In my judgment, this evidence would justify me in dismissing the entire counterfeit case. It is riddled with mysteries, lacunae and above all, with procedural unfairness to MDL. It should be borne in mind that apart from anything else, experiments performed in connection with proceedings are done to make rock solid the evidence, usually expert evidence, of witnesses. They are thus done to prove something in court (rather than to find something out in a laboratory) and are thus not like ordinary scientific experiments. In my view, in civil cases (and a fortiori in quasi-criminal cases) informal, unilateral evidence of such experiments is just not good enough, a fact that was established long ago in connection with patent cases where a strict regime is in place when it comes to such matters (Footnote: ⁷⁰). Furthermore, those who have witnessed the repetition of a party’s experiment in patent cases know only too well that repetition does not always proceed in accordance with plan and worse, that hitherto unsuspected experimental factors often emerge as a result. No doubt there are many ‘counterfeit’ cases which pass through HMCE’s hands where a mere visual inspection of suspect items may be enough. But where as here, actual analysis by experiment is required, the usual HMCE procedure may perhaps require revision.

I am fortified in the view I have taken over the sampling by the evidence of Mr Vandervord. At D11/1182-1183, he said of the removal of the samples on 6 September 2004: “I was not very happy with that initial sampling procedure. It was irregular, it was outside the normal process.” This accords with HMCE’s fax of the same date to which I have referred. Mr Atkinson said of this that in his view “it was totally not irregular” (Footnote: ⁷¹). I have no hesitation in preferring the evidence of Mr Vandervord.

At times, I was referred by both parties to the decision of the Court of Appeal in Markem Corp v Zipher Ltd [2005] RPC 31 at 761 and to the so-called rule in Browne v Dunne (1894) 6 R 67 . In connection with this aspect of the case, Mr Vanhegan suggested that if I was to make a finding adverse to his clients on the question of whether the integrity of the Consignment had been compromised, the issue would have to have been put fairly and squarely to at least Mr Atkinson – and that it had not been so put. I disagree; I have looked at the evidence. Mr Atkinson was comprehensively cross-examined on this subject: see inter alia D10/1079,1086,1090,1100, 1105,1112,1113, and D11/1263. I was not impressed with Mr Atkinson as a witness.

In deference to the time spent by counsel on other aspects of the counterfeit case, I should nonetheless record my findings on further matters which were in issue.

Mr Peter Craggs is a naval man. He has a degree in marine engineering and is a naval architect. He has worked in the marine services sector all his life now being the managing director of James Industrial Services Ltd. He is a Spanish speaker and when he first met Mr Kenyon in November 2000 he was living in Cuba with his companion Janet Crusada. Though some attempt was made to demonise him about his company affairs, his passports etc, it has in my judgment singularly failed. Indeed by the close of the case, Mr Vanhegan had only relatively minor criticisms of his performance as a witness, mainly to do with his recollection of events in August 2004 when he agreed on behalf of Mr Kenyon to see to the shipping of the Consignment. Mr Vanhegan gave him the ambiguous title of ‘consultant’ to MDL, but in truth he appeared to me to be a UK citizen resident in Cuba, who ‘knew the ropes’ in Havana and who was willing (no doubt for a fee) to act as occasional factotum to Mr Kenyon-whom he met in late 2000. Mr Craggs was the first witness in the case to give evidence and I found him to be a person whose evidence could be relied on. In cross- examination he was taken at considerable length through all the relevant events on the two days in late August 2004 when he saw to the dispatch of the Consignment: from when he selected the Consignment at the Quinta Avenida Casa with the Casa’s salesman Sr Osmany Rios to the moment he saw it shrink-wrapped and taken into the customs security area at José Marti Airport for transport to Gatwick aboard Cubana flight CU 400. I reject Mr Vanhegan’s suggestion that his occasional lapse of memory disqualified him from being taken seriously as a witness. The highlight of his lapse of memory was when he was shown to have forgotten that he had not paid the Customs and Airway bill charges on the 24 August when he delivered the Consignment but rather first thing the following morning. I do not regard this as being significant.

Mr Craggs was also responsible for the gathering of evidence from local tobacco outlet managers relating to the attitude of HSA to the private purchase of cigars form official outlets in Cuba for export, the $25,000 limit on purchases and so forth, which was later retracted or amended by those witnesses. I have not found it necessary in reaching my conclusions to go into these matters at length in spite of Mr Hobbs’ invitation to do so. Nor have I found it necessary to make a finding on Mr Craggs’ oft stated conviction that the retail outlets knew full well that their sales of large quantities of habanos for export, both to him and to others, were destined for commercial purposes elsewhere.

I am not proposing to go through all Mr Craggs’ evidence on the dispatch of the Consignment - some of which I have in fact already referred to. I will just say this however. First, at every stage when the boxes were checked (viz at the time of selection of the Consignment in the Casa and thereafter at the airport) Mr Craggs examined every single box ‘for any external evidence of irregularity’ as he put it (Footnote: ⁷²). “They were never out of my sight”, he said (Footnote: ⁷³). He had done this before and in my view, he indeed ‘knew the ropes’. Moreover, in each case, he was working in the company of either an employee of the Casa or with a Customs official. After selection, the cigar boxes were put into mastercases which were at once loaded into the van. I have already held that what then arrived at José Marti Airport and was there placed still in the mastercases on a pallet for Customs checking was what he had seen being loaded into the van an hour or less before. The Consignment was first weighed and then inspected. Mr Craggs again went through the entire Consignment with the Customs officials, the latter ‘rigorously’ checking each item (including the holograms thereon (Footnote: ⁷⁴)) against the four relevant facturas (Footnote: ⁷⁵). ‘Every single box is inspected’ Mr Craggs told me (Footnote: ⁷⁶). He has produced these facturas – which are unarguably in order: B2/1. The boxes were replaced in the mastercases and Mr Craggs saw the Consignment through Customs on the pallet and into the adjacent guarded customs transit shed. Before this was done, the ‘mastercases’ were wrapped and sealed (Footnote: ⁷⁷). This is what Mr Craggs said (Footnote: ⁷⁸):

I feel sure that Mr Craggs was telling the truth when he said that he was both ‘shocked and surprised’ later to learn of the presence of alleged counterfeits within the Consignment. In my judgment, the shrink-wrapped pallet which went into the secure Customs area at Havana Airport did not contain either counterfeit cigars or packaging.

The Consignment was in due course loaded onto Cubana flight CU 400 and later arrived at Gatwick Airport. It was common ground that the likelihood of infiltration with counterfeits during the next three stages of transit was non-existent, that is, whilst the Consignment was in the aeroplane’s cargo hold, upon arrival at the Customs area at Gatwick and during its initial detention at the PBS warehouse at Crawley. How then, did counterfeits (if counterfeits they be) get into the Consignment? That is another unusual feature of the case.

With the provenance thus described, one would I think be surprised to find the Consignment infected with counterfeits on arrival in England. Some explanation seemed urgently to be needed and shortly before trial, Sr Garrido came up with the following suggestion: the Consignment had been opened by dishonest Customs officers at Havana airport during its brief residence in the export warehouse, boxes of counterfeit cigars had been substituted for genuine ones and the Consignment again shrink-wrapped. This, said Mr Vanhegan, ‘was the most likely scenario’ (D13/1465). I reject that submission; there is nothing in either the pleadings or the evidence to support it.

Sr Garrido’s suggestion (and it is no more than that (Footnote: ⁷⁹)) is set out in his second witness statement. This was put to Mr Craggs, but he could not assist: D3/256-257. I have re-read this evidence and have no hesitation in concluding that on the balance of probabilities (at least), what was exported from Cuba and landed at Gatwick contained no counterfeits.

The counterfeit case has not been proved. In my judgment, no counterfeits were imported into the United Kingdom.

I should next consider this aspect of the counterfeit case in the event that I be held wrong in reaching the conclusions I have thus far reached. For that purpose I shall assume that the single box of Royal Bolivar Coronas which lacks a hologram would have been a counterfeit if it had been part of the Consignment imported into the United Kingdom. However I do not accept that it formed part of the Consignment or that it subsequently came to form part of the Consignment as a result of anything done by anyone acting on behalf of MDL

I was inclined at first to think that two other boxes (Footnote: ⁸⁰) in the Consignment might also fall in the same category since both had poor printing augmented by rather crude overwriting in ink. However in the light of the evidence of Sr Lucas as to one (D4/496-500) and Sr Moreno as to the other (D4/378 and B1/4/§ 19), I am persuaded that they should properly be assigned to the general category of alleged counterfeits within the Consignment as imported.

Amended indicia of inauthenticity were conveniently summarised and tabulated by Mr Vanhegan as an annex to his closing submissions. I need not set them out in this judgment. In all, apart from the Royal Bolivar Coronas, nine boxes of cigars taken from H&F’s two test samples (29 and 31 boxes) are alleged to be counterfeit. If HSA are right, this represents a significant infiltration of the Consignment.

The onus is upon HSA to prove that these boxes contain counterfeit cigars or make use of counterfeit packaging material.

Before considering the evidence, I shall make some general remarks.

I will conclude with the following criticisms of the evidence on indicia. First, a number of the indicia inexplicably changed during the course of the proceedings, some being abandoned whilst others were augmented. Next, in some cases, HSA’s witnesses could not be sure that a particular indicium was indicative of a counterfeit, but had to rely on a number of indicia for this purpose.

I was particularly concerned with the evidence as to cigar gauges being a reliable indicium of inauthenticity. I mentioned that my copy of the Guide contained a separate card entitled ‘Habanos Ring Gauge Guide’ which was appropriately perforated for testing cigar gauges. I tested a box of alleged counterfeits during a short adjournment using this card and found a cluster of results. I therefore asked that a ‘genuine’ box of the same brand be similarly tested. As a result, on 21 July 2005, Sra Marcio tested two cigar brands using a wooden ring gauge (which she had with her) in Court and again in the Court library using the card gauge from the Guide, on both occasions in the presence of representatives of each side. The results were collected and form Exhibit X 20. This exhibit shows some deviation form the ‘expected datum’ in every case-just as I would have expected with a hand-made consumer product.

Finally, a number of indicia concerned cigar boxes and inserts therefor. Some of the indicia such as ‘damaged flitch sheet’ seemed to me on inspection to be relatively minor. Furthermore, I felt that the integrity of these items could well have been affected during the initial opening of the boxes - a process which was not of course witnessed by representatives of MDL or HMCE.

I need not go through all the indicia, though evidence was given in respect of each. I shall simply record that I am not satisfied that the ‘indicia of inauthenticity’ may be reliably regarded as indicative of the presence of counterfeit material as alleged. In addition, the process whereby many of these results were obtained was I believe, both unsatisfactory and unfair. Experiments of this nature, even simple experiments, must in my view be subject to a more rigorous protocol if they are to be credible in a court of law.

For all these reasons, in my judgment, infringement on the basis of the counterfeit case has not been proved.

The relief prayed for in the declaratory action falls into two parts. Paragraphs 6-8 relate to counterfeits. I have held that there were no counterfeits in the Consignment when it was landed at Gatwick. Paragraphs 9 and 10 however relate to trade mark infringement simpliciter. This has been established and will have to be reflected in the order to be made. The Part 20 proceedings succeed in relation to the parallel imports case and HSA are therefore entitled to injunctive relief prayed for. I shall however hear counsel on the form of order to be made in due course.

Finally I wish to record the Court’s indebtedness to the excellent work of the two Spanish-speaking interpreters who were in attendance throughout the trial: Sra Lucia Alvarez de Toledo and Sra. Myriamm Garcia Bernabe.

A draft of this judgment was sent to the parties’ legal advisors on 23 February 2006 to enable them to correct typographical and similar errors. In accordance with the usual practice, I imposed an embargo on publication of the contents of the draft judgment to any other parties and at the time of writing, this embargo continues.

I have received notice of suggested corrections from counsel (concerning which there is no real difficulty) together with one or two more substantial observations particularly touching aspects of the case which have been omitted from (or merely touched upon) in the draft. Counsel have invited me to make good these omissions-none of which I would add, affect the conclusions I have reached. I have been invited to act upon these suggestions in the light of remarks of Pumfrey J in Navitaire Inc v Easyjet Airline Co Ltd (No 2) [2006] RPC 213 at §82..

I have accepted some but not all of these suggestions in this final version of the judgment. One suggestion (see §124 above) must await the outcome of further argument on the form of the final order – which at this date, is still to take place.