Honda Giken Kogyo Kabushiki Kaisha & Anor v Neesam & Ors

This is a claimants' application dated 2 March 2009 for the hearing of two preliminary issues in the inquiry as to damages in a trade mark infringement action, which was decided largely in favour of the claimants.

There were two judgments on liability as I understand it: one from Lewison J on 24th March 2006 and another one from Sir Andrew Park on 28th February 2008. I do not think I need to go into those judgments for present purposes and have in fact told counsel that I have not read them.

The claimants, for whom Mr. Abrahams appeared, are members of the Honda Motor Corporation of Japan if I may so call them: Honda Motor Company Limited, a Japanese company, and its subsidiary, Honda Motor Europe Limited. The trade marks in question are, I believe, owned by the Japanese parent.

I need mention only one matter from the action itself, which will have a bearing on the inquiry as to damages. That is, that the acts complained of were sundry parallel imports of motorbikes from Australia and possibly, from other countries. In the pleadings in the enquiry which have, I think, closed the machines in issue are called "Judgment bikes".

There are four defendants, all represented by Mr. Iain Purvis QC and Ms. Kathryn Pickard. The defendants may, be classed into two groups. Again, I do not think I need go fully into the matter for present purposes, but the first two are persons by the name of Neesam and the others are DK Motorcycles and JKM Superbikes Limited. They oppose the application for the determination of the preliminary issues, for a number of reasons, which I shall come to.

The application notice is part of tab 1 of the bundle which has been assembled for use today. The order for which the claimants are asking is this:

"An order that there shall be a trial of the following preliminary issues:

(1)

whether Honda is entitled to user damages in respect of the Judgment bikes, as contended for in paragraph 30 of Honda's Amended Points of Claim" 

and:

"(2)

how such damages should be calculated as a matter of principle,

and for case management directions in relation to the preliminary issue trial on the terms set out in the attached draft order."

In opposition, the defendants in a nutshell, say three things. First, they say that the determination of the preliminary issues will not be determinative of the action either way and will not, therefore, facilitate a swift resolution and/or cost-saving exercise in relation to the damages enquiry. They also say that there is a risk of injustice to the defendants if the preliminary issues are ordered and (and this is an important theme) trial of the preliminary issues will delay the commencement of mediation - for various reasons.

Let me look next at the amended points of claim, which is a massive document made so, I think, largely by annexes. It is to be found at tab 8. I should say at the outset that there are four heads of claims entitled Heads A, B, C and D. Paragraph 30 refers to Head B and is entitled "Notional royalty in respect of Judgment bikes sold by the Defendants" and reads:

"Further or alternatively, if in the case of any Judgment bike sold by the Defendants, the purchaser would not otherwise have purchased a Honda motorbike from a Honda Dealer, Honda is entitled to damages on the basis of a notional royalty in respect of the sale of each Judgment bike".

I will add paragraph 31:

"Such notional royalty should be calculated as a percentage of the sale price of the Judgment bike in question."

In order to make clear what I am about to say, I should take a deeper look at these four heads of alleged damages. Head A is for direct loss caused to Honda UK by the defendants' sales, Honda's case being that for each machine sold by the defendants, there is a corresponding lost sale by Honda UK to one of its dealers; and it claims the profits on each lost sale. There has been some discussion about the value of that claim and I think I am right in saying the claim is for about a million and a half pounds.

Head B is on the additional, or alternative basis. Honda claims that in respect of any of the defendants' sales for which it is unable to prove that Honda UK suffered loss, Honda Japan is entitled to a notional royalty for each of those sales. There has been discussion in the written documents before me about the methodology of calculation. Honda has proposed a methodology for calculating the notional royalty in respect of each machine that is based upon Honda UK's lost profits. This "user damages" claim, as it was called, has been estimated to be worth about £1 million. Evidently large sums of money are involved.

Heads A and B both relate to machines that were sold by the defendants but head C claims damages in respect of those bikes that were not sold by the defendants, but which were imported or stocked for sale. I am not sure what has happened to them but the loss is said to be a loss suffered by Honda Japan and is valued at a flat rate of, I think, £100 per motorbike.

Head D is a general claim to damages suffered by Honda UK for price depression which Honda alleges was caused by the defendants' acts.

Then, in addition, interest is claimed on each of these sums as may be found due. Although counsel, I think, were inclined merely to mention interest, I did point out that in an inquiry as to damages, interest can be a serious and difficult question. I am not saying it is going to be here but I pointed to the General Tire case, where the question of interest became a sub-dispute on its own. Although pleaded in the alternative, there is a possibility, I would just note, that the inquiry could include both Heads A and B.

At one stage, Mr. Abrahams expressed concern at the delay which had already arisen in the defendants' conduct of this inquiry. In relation to the issue of protection afforded by the provision for interest, he doubted -- or perhaps that is too strong a word, he questioned -- whether the defendants would in the end ever have the means to pay. He was thus concerned on his clients' behalf - a sentiment that I have come across before. Mr. Purvis, not surprisingly, took strong issue with this and for present purposes I propose to say no more about it. Interest is there to protect parties in these circumstances but, by the same token, delay is obviously not to be countenanced by the court.

I will not say more about the scope of the inquiry than this. There are a number of interesting questions raised. For example, this being a parallel imports case and the machines having been manufactured by Honda Japan in the first place, there is the question of what in the Copyright Tribunal is called "double dipping". There are other interesting and unusual aspects to the inquiry, but my purpose in mentioning it is simply to stress that if it fights, this is going to be a substantial inquiry as to damages, by any account.

Evidence was filed by both parties and although I have had the papers only a short time, I have read most of it. Mr. Andrew Robinson has made a witness statement on behalf of the defendants. Mr. Neville Cordell; a partner in the claimants' firm of solicitors, has also made a witness statement. Also there is Ms. Claire Bennett, who has given a second witness statement on behalf of the claimants.

That brings me on to the question of possible settlement. In connection with the possibility of mediation, Mr. Abrahams drew my attention in particular to paragraphs 4 to 7 of Mr. Cordell's witness statement. As this application progressed it became clear that the main purpose of Honda's application was the laudable one of catalyzing, if not giving a boot to, the resolution of this dispute by means of mediation. This is, after all, a money dispute. In this connection, Mr. Abrahams drew my attention to the Chancery Guide, paragraph 3.11 and to the TCC Guide, paragraph 8.5.1. Mr. Purvis also drew my attention to paragraphs 8.3(d) and 8.2.3 of the TCC Guide. These show that one of the purposes, or a possible purpose, for the ordering of a preliminary point is to, as it were, "concentrate the minds of all wonderfully" on the real issues and to get them talking.

Though mediation suggestions have been made, I believe, by the defendants, it would appear that Honda has done nothing to advance the cause of mediation. I have not been into the details, but I was told that the parties are apparently miles apart. Mr. Abrahams dramatically drew my attention to the fact that the basic riposte of the defendants to the entire inquiry as to damages is to say that they owe the claimants nothing. Without expressing any informed view about the matter, I thought, just from the layman's point of view, having won a trade mark infringement action, that it would be most unlikely that they would be entitled to no damages whatsoever.

No doubt to sweeten his application, Mr. Abrahams said that Honda would "seriously consider" abandoning its claim under Heads A, C and D if I acceded to his application. Needless to say, Mr. Purvis was unaffected by this offer and noted that no undertaking to the Court had been given to back it and for present purposes, though reiterated several times, I will say no more about it. As it stands, it seems to me if I may put it bluntly, a very good idea. Obviously, Mr. Abrahams and his clients want to keep their powder dry in case it needs to be used in the future.

I would just say that heads C and D, though characterised as being ‘relatively minor’ by Mr. Abrahams, looked to me, potentially, to have teeth in them, particularly if one has, under D, to go into the state of the motorcycle market in this country.

I would also add that there seemed to be agreement that assessment under head A would present the greatest probative difficulty and occupy most of the time of the court. It was indeed, at one stage, characterised as a "nightmare".

Whatever the result of this application, there would nonetheless have to be a trial on the inquiry. The trial of the preliminary point was estimated to be likely to take about a day and, it was suggested, could take place before the end of the Trinity term. Though the preliminary point, were it to be resolved in Honda's favour, would avoid part of the inquiry at full trial, I remain unconvinced that it would greatly shorten trial time.

On the question of the likelihood of settlement, I should also add that the issue which is the subject of the preliminary point is an unusual one. I think the difficulty which follows was well expressed by Mr. Abrahams in his skeleton of argument:

"There is no binding UK authority on whether ‘user damages’ are recoverable in a trade mark case (there is a decision of Master Bowman in favour of the proposition: Roadtech Computer Systems v. Mandata (Management and Data Services Limited) [2000] ETMR 970). There is no UK authority at all in relation to a case of trade mark infringement by unlawful parallel imports. This uncertainty not only threatens to cause wasted effort at the trial, but it is impeding settlement of the inquiry. The latter point is compelling, because trade mark enquiries virtually never get tried but settle instead -- hence the lack of authority."

Two things follow from that. First, I need hardly say that Mr. Abrahams is right or if you look at Kerly on Trade Marks, you will see that historically, there have been rather few enquiries as to damages for trade mark infringement; they settle for various reasons, no doubt cost being one of them, because, in addition to specialist lawyers, one has, as I mentioned, the evidence, of forensic accountants, which does not come cheaply.

The main point that comes from Mr. Abrahams’ skeleton of argument is this: we are, he said, in an area of uncharted waters. Mr. Purvis drew my attention to a case decided a few years ago in the Court of Appeal called Reed Executive Plc v. Reed Business Information [2004] RPC 40, a trade mark infringement case. The main judgment there was that of Jacob LJ. At paragraph 165 he said this:

"I would only add one further matter in relation to damages. I am by no means convinced that the 'user' principle automatically applies in trade mark or passing-off cases, especially where the 'mark' concerned is not the sort of mark available for hire."

- which I would add, appears to be the case here –

"The ordinary case is one that just protects goodwill. For damages to be awarded on the user principle is close to saying that there is no damage so some will be invented. It is not the same sort of thing as having to pay for use of an invention (the basis of the user principle in patents). At present there is no clear finding that the inquiry should proceed on a user basis. Whether it should do so is a matter for the judge - who thus far has said no more than that he 'apprehends' that a user basis will be used."

I quote this to show that we are indeed in an uncertain field of law. What does that mean in practical terms? It must mean (and I agree with Mr. Purvis about this) that there is the likelihood of an appeal if I accede to this application, possibly even a series of appeals and this must be another factor to be taken into account in reaching a decision on this application.

Next I should say something about the approach I must take to the application and the law on the trial of preliminary issues, on which there is a fair amount of authority. I was taken by counsel to a number of authorities, many of which will be familiar, and most of which turn on their facts. I think one of the preeminent ones, which was quoted by the defendants, is from the case of Tilling v. Whiteman [1980] AC 1. There Lord Scarman, said "Preliminary points of law are too often treacherous shortcuts". I was also taken to Smithkline Beecham v. Apotex Europe [2005] EWHC 1122; to Dualit v. Rowlett Catering Appliances (unrep.) 23rd November 1999 and also to the well-known case of Steele v. Steele, CP Rep 106.

The last case was a decision of Neuberger J (as he then was). He refused to deal with a point at a preliminary hearing, notwithstanding that the court had ordered the preliminary issue on the basis that the parties had consented to such a course. Neuberger J identified ten questions (‘Neuberger J’s progression’) that the court should ask itself before ordering the trial of a preliminary issue and I shall come back to some of them briefly.

I appreciate that Honda's driving motive in this application is to try to narrow the gap between parties so that mediation can become realistic and, as I have said, that is a wholly laudable ambition. But I have to take into account that mediation may fail. I have seen it as a judge and failure can lead to most unfortunate consequences. In this case, it might leave everybody, I believe, in a worse position than if the preliminary point had not been ordered.

I must stick to principles here but have necessarily, I think, do some crystal ball gazing; we have to look at what may happen in the future. For example, I said to Mr. Abrahams at the beginning that I did not like the second preliminary point of application. That is the one which sought an order to determine how damages should be calculated in the enquiry, as a matter of principle, assuming I acceded to the first preliminary point. That does not appeal to me. If that preliminary point was ordered today, the judge taking the enquiry must necessarily to be required to opine on matters of principle which, I felt, could unfairly fetter him at the enquiry. I felt in fact that Mr. Abrahams, in the end, did not press the second preliminary point.

Next, I think I should identify some main factors which, in my view, militate against acceding to Honda's application – in no particular order.

First, the defendants agree that ‘user damages’ will be a legitimate issue in this enquiry. It is not, if I may put it, some hopeless eccentricity that is waiting to be struck out.

Secondly, unlike many applications for the hearing of a preliminary point which have been successful, the resolution of the first preliminary points will not, as such, catalyze the end of this litigation. It could, according to Mr. Abrahams, bring people closer together, but I do not think it will bring an end to the litigation as such. There are large amounts of money at stake and, as I have noted, a heavy enquiry could still go on, even if the preliminary point is acceded to.

Thirdly, were I to accede to the application, I assess the likelihood of an appeal following to be high indeed. If that were to happen, more time would be wasted and money and resources spent, possibly unnecessarily. Mr. Purvis suggested that the matter could even go higher than the Court of Appeal, but I express no view about that.

Though acceding to the application might resolve a part of the dispute, from the point of view of time and content, I consider that the matter could be resolved about as easily at trial rather than at a separate hearing in July.

Finally, I am going to look at a few items in what was referred to as "Neuberger J's progression" from the Steele v Steele case (above). There were ten items. Some of them are applicable; some I do not think are applicable here at all. The first item was: would the determination of the preliminary issue dispose of the case or at least an aspect of the case? It would certainly, in my view, not dispose of the case but it could dispose of an aspect of the case. The enquiry will continue, of course, whatever the outcome of the preliminary issue hearing. If Honda succeeds in establishing entitlement in principle to Head B damages, then the enquiry will continue to determine the quantum of Honda's entitlement under heads A, B, C and D. If Honda fails on the preliminary issue, then the inquiry will continue under Heads A, C and D. So there it is. Unlike many cases, this is not a net result at all; the case will have to go on.

Second question: would determination of the preliminary issue significantly cut down the cost and time involved in pre-trial preparation or in the trial itself? I do not believe that to be the case. Mr. Purvis, or rather his learned junior, who is the authoress of the skeleton of argument, Ms. Pickard, says this, and I agree with her:

"The best case scenario is that Honda loses the preliminary issue such that Head B damages do not fall to be determined at trial. However, if that occurs, Honda will pursue its claims under Heads A, C and D. Ms. Bennett's evidence is that she expects the Head A to be 'by far and away the most time consuming and costly of the inquiry'. The Head D claim, which requires an 'economic analysis of the motorbike market in the UK', will also be time-consuming and costly.

"The alternative scenario is that Honda wins the preliminary issue. In that case the inquiry may well proceed on the basis of all four heads of damage."

I also believe that, overall, the trial of the preliminary point would be likely (and I put it no higher than that) to delay any mediation, which I think, is what the parties should be getting on with now.

In summary, then, I shall dismiss the application and direct that both parties use their best endeavours to ensure that a mediation is heard before the end of the Trinity term. I would like that to be recorded in the order that is to be made on this application. I would also wish the parties to report to the Court, through my clerk, in writing, on progress by 1st June 2009. Finally, ‘best endeavours’, as we know from best endeavours clauses in contracts, does not mean ‘second best endeavours’.