Tuesday 2 April 2024

Fiduciary Duties and Trade Marks - The Appeal in Quantum Advisory Ltd. v Quantum Actuarial LLP.

UK Trade Mark 3320701

 








Jane Lambert

Court of Appeal (Lord Justices Newey and Nugee and Sir Christopher Floyd) Quantum Advisory Ltd v Quantum Actuarial LLP [2024] EWCA Civ 247 (14 March 2024)

In Quantum Advisory Ltd v Quantum Actuarial LLP [2024] EWCA Civ 247 (14 March 2024), the Court of Appeal heard appeals by both the claimant and defendant against orders made by His Honour Judge Keyser KC sitting as a judge of the High Court in Quantum Advisory Ltd v Quantum Actuarial LLP [2023] EWHC 47 (Ch). The defendant, Quantum Actuarial LLP ("LLP") appealed against His Honour's finding that it could use the QUANTUM ADVISORY brand only for so long as it had an agreement with the claimant, Quantum Advisory Ltd ("Quad"), to provide services to Quad's clients.  It also appealed against the judge's order to substitute Quad's name for LLP's as the proprietor of three QUANTUM ADVISORY trade marks under s.10B of the Trade Marks Act 1994 that LLP had registered in its own name.  Quad appealed against the judge's refusal to substitute its name as the proprietor of the stylized "Q" mark appearing above under s.10B 

The Parties

LLP was incorporated in 2007 to provide services that had previously been supplied by a company then known as Quantum Advisory Ltd. which the judge and Lord Justices called "Old Quad".  An agreement was concluded between LLP and Old Quad on 1 Nov 2007 whereby LLP would employ Quad's staff and use its offices and the QUANTUM ADVISORY branding but Old Quad would retain its clients and goodwill.  Fees for services to Quad's clients would be divided 57% to LLP and 43% to Old Quad.  LLP would be free to develop its own business using the same branding and keep the revenues from that business for itself.  This was referred to as "the Services Agreement".  Shortly after the signing of the Services Agreement Old Quad's undertaking was transferred to a company called Pascal Company Solutions Ltd. That company swapped names with Old Quad. The new Quantum Advisory Ltd is the company referred to above as "Quad".  The Services Agreement was novated from Old Quad to Quad.

The Dispute

Even though Old Quad had generated considerable goodwill in the QUANTUM ADVISORY brand and both LLP and Quad had used it in their advising and business stationery, LLP registered the following trade marks without Quad's knowledge or consent:

Filing Date

Mark

Number

27 June 2018

UK00003320701

27 June 2018

UK00003320709


27 June 2018

UK00003320706 

5 Nov 2018

QUANTUM ADVISORY

UK00003350849


By letters dated 9 July and 7 Aug 2020 LLP asked Quad to stop using those marks.  It appears from para [19] of Judge Keyser's judgment that Quad issued proceedings claiming that it was entitled to the trade mark registrations in equity or, alternatively, rectification of the register under s.10B. 

Trial

A trial took place before Judge Keyser between 1 and 3 Nov 2022.  His Honour handed down judgment on 18 Jan 2023.  By para [124] of his judgment, he held that LLP was a fiduciary to Quad in respect of the conduct of Quad’s business. In the next paragraph, he held that LLP was licensed to the use of the QUANTUM ADVISORY brand only during the subsistence of the Services Agreement. Upon termination of that agreement, LLP would no longer be licensed to use the brand and would be liable to a claim for passing off if it materially misrepresented its business as being associated with Quad so long as the other requirements of the tort were met.  Between para [126] and [128] he held that Quad was entitled to substitute its name for that of LLP as proprietor of UK00003320709, UK00003320706 and UK00003350849 but not UK00003320701 pursuant to s.10B, but not to an order for rectification, assignment or transfer in respect of any of the registered trade marks in equity.

The Appeals

The appeals were heard by Lord Justices Newey and Nugee and by Sir Christopher Floyd on 6 and 7 Feb 2024.  Their lordships handed done judgment on 14 March 2024.  Lord Justice Newey and Sir Christopher Floyd delivered the lead judgment with which Lord Justice Nugee agreed.

Whether LLP was a Fiduciary

Their lordships began with LLP's appeal.  They analysed the Services Agreement by which LLP agreed to supply consulting, actuarial, administrative and investment services for the fees mentioned above.  They considered Judge Keyser's reasons for finding that LLP was in a fiduciary relationship at [29].  They referred to Lord Justice Millett's description of a fiduciary in Bristol and West Building Society v Mothew [1998] Ch 1 on page 18 as "someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence". They noted that the concept of a duty of loyalty was defined by the Privy Council in Arklow Investments Ltd v Maclean [2000] 1 WLR 594 as one:
"encaptur[ing] a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal"

They recalled that  Lady Arden had quoted with apparent approval the following passage from the judgment of Mr Justice Finn  sitting in the Federal Court of Australia, in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, at para 177 in Children's Investment Fund (UK) v Attorney General [2020] UKSC 33, [2022] AC 155, at para 47:

"a person will be in a fiduciary relationship with another when and in so far as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other's interest to the exclusion of his or her own or a third party's interest".

However, they also noted that she had added in para [48] that "[r]easonable expectation may not be appropriate in every case". Lord Justice Newey and Sir Christopher considered the position of trustees, partners, company directors, solicitors and agents.  They also discussed writings on the topic including Paul B Miller's in Philosophical Foundations of Fiduciary Law, ed. Gold and Miller, 2014 at 69.  He defined a fiduciary relationship as "one in which one party (the fiduciary) exercises discretionary power over the significant practical interests of another (the beneficiary)."

Their lordships quoted Lady Justice Asplin's observation in Eze v Conway [2019] EWCA Civ 88 that 

"[a]lthough the relationship of principal and agent is a fiduciary one, not every person described as an 'agent' is the subject of fiduciary duties and a person described as an agent may owe fiduciary duties in relation to some of his activities and not others".
They remarked that "[i]n general at least, an 'agent' with the ability to alter the principal's legal relations with third parties will have fiduciary obligations."

After considering LLP's arguments as to why it might not be a fiduciary, they concluded at [36]:

"In the present case, the Judge was, in our view, amply justified in concluding that there is a fiduciary relationship between LLP and Quad. Under the Services Agreement, LLP was appointed to be 'solely responsible' for the provision of the 'Services' as regards legacy clients and granted 'such power and authority as is necessary or desirable for providing the Services.' Quad still had a board of directors, but it no longer had any staff and had made available to LLP the assets which it had been using for the provision of services to legacy clients."

They added in the next paragraph:

"In the circumstances, LLP is plainly, we think, an 'agent' of such a kind as to be a fiduciary. LLP can fairly be said to have 'undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence', and, as regards the legacy business, the circumstances are such as 'reasonably [to] entitle [Quad] to expect that [LLP] will act in [Quad's] interest to the exclusion of his or her own or a third party's interest' (to adapt words of Finn J). Again, the relationship between LLP and Quad is one in which LLP 'exercises discretionary power over the significant practical interests of' Quad (to echo Paul B Miller's formulation)."

That was not the end of the story because the duties that a fiduciary owes can be shaped to an extent by the particular context in which the relationship arises.  

Any modification to LLP's fiduciary relationship would have to lie in the Services Agreement.  The clause that allowed LLP to use Quad's assets stated that they had been made available to enable LLP to provide the specified services.  That same clause contained a proviso that consent to use those assets would be terminated immediately upon the termination or expiration of the Services Agreement. Moreover, as Wadlow explained in para 3-311 of The Law of Passing Off, 6th. ed. the goodwill in a business carried on using a mark under a licence is presumed to accrue to the licensor:

"If the commercial purpose of an agreement is to license the use of a distinctive name or mark in respect of which the licensor has (or is agreed to have) goodwill, to a licensee who has (or is agreed to have) no such goodwill, and in circumstances where the licensee's use would otherwise be actionable as passing-off, then in the absence of agreement to the contrary or other supervening factors, the goodwill in the business so carried on by the licensee under the licensed name or mark will accrue to the licensor rather than the licensee. The licence may be express or implied, provided always that it does not offend against the prohibition on transactions in gross. The licensee acquires no interest in the licensed name or mark and must cease using it on termination of the licence. Examples are to be found in Coles v Need [[1934] AC 82], Roberts v Davis [(1935) 53 RPC 79], Manus v Fullwood & Bland [(1949) 66 RPC 71], Bostitch [[1963] RPC 183 and [1964] RPC 173], and Dawnay Day v Cantor Fitzgerald [[2000] RPC 669]. It is irrelevant whether the goodwill in the licensed business would otherwise have accrued to the licensee, the licensor, or both. It is the parties' contractual agreement, and not some extrinsic legal fiction or equitable doctrine, which operates to vest the goodwill in the licensor, unless otherwise agreed, because no other outcome is consistent with the ordinary licensor-licensee relationship."

It followed that there was nothing in the Services Agreement that modified LLP's fiduciary duty.

Whether LLP was a Licensee

After hearing evidence from both sides, the trial judge concluded that the right to use the QUANTUM ADVISORY brand was coterminous with the Services Agreement.  Lord Justice Newey and Sir Christopher Ployd observed at [58] that there are only limited circumstances in which an appellate Court is entitled to interfere with a finding of fact made by a trial judge. They referred to para [67] of Lord Reed's judgment in Henderson v Foxworth Investments Ltd [2014] UKSC 41, [2014] 1 WLR 2600:

"in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified".
In their lordships' view, there was no question of their being entitled to interfere with the Judge's finding of fact that the express basis on which the use of the QUANTUM ADVISORY mark as agreed in 2007' was that "the licence granted to LLP to use the Mark was coterminous with the Services Agreement." The finding was rooted in the judge's assessment of the relevant evidence and was the subject of a full explanation. It also accorded with common sense, since it was very difficult to see how it could be satisfactory (or how the parties could have thought that it could be satisfactory) for LLP and Quad both to trade using the QUANTUM ADVISORY branding once the Services Agreement had come to an end.

Rectification of the Register

Reg 11 of the Trade Marks Regulations 2018 (SI 2018 No 825) inserted a new s.10B into the Trade Marks Act 1994:
"(1) Subsection (2) applies where a trade mark is registered in the name of an agent or representative of a person ('P') who is the proprietor of the trade mark, without P's consent.
(2) Unless the agent or representative justifies the action mentioned in subsection (1), P may do either or both of the following—
(a) prevent the use of the trade mark by the agent or representative (notwithstanding the rights conferred by this Act in relation to a registered trade mark);
(b) apply for the rectification of the register so as to substitute P's name as the proprietor of the registered trade mark."
This regulation implemented art 13 of Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks (recast) (Text with EEA relevance) OJ L 336, 23.12.2015, p. 1–26 which itself implements art 6septies of the Paris Convention for the Protection of Industrial Property 1883.

Lord Justice Newey and Sir Christopher noted that s.10B referred to "P" as the proprietor of the mark.  It was clear that P's mark did not have to be registered or registered in the same jurisdiction.  Referring to para [91] of the Court of Justice of the European Union's judgment in Case C-809/18P EUIPO v John Mills Ltd. [2021] Bus LR 123, they observed that the equivalent article of Council Regulation (EC) No 207/2009 (the Community Trade Marks Regulation) applied to similar as well as identical marks.

They mentioned in para [68] that Judge Keyser had identified 5  requirements for a successful application under s.10B that neither the parties nor the Court of Appeal criticized:
"i. LLP must have been the agent or representative of Quad.
ii. Quad must have been the proprietor of a trade mark that (a) is identical with or similar to the registered trade mark and (b) subsisted in goods or services identical or similar to those for which the registered trade mark was registered.
iii. LLP must have applied for registration of the trade mark in its own name.
iv. LLP must have applied for registration without Quad's consent.
v. LLP fails to establish that its actions in applying for registration of the trade mark was justified."

There was no dispute that the first, third and fourth requirements had been satisfied for all the marks.  As for the second, it was agreed that all the marks except UK00003320701 met that requirement.  With regard to the fifth, LLP argued that it had an independent and concurrent right to use the marks which it had registered in respect of its own business.  The judge decided the first issue in LLP's favour:

"Accordingly, Quad's case under section 10B in respect of the Q Device Trade Mark fails. Such a case would have had to assert not that the Hero Q was similar to or associated with the Mark but that it was itself identical to a mark of which Quad was the proprietor. No such assertion was made … in the particulars of claim (cf. paragraphs 3, 6 and 16) and that is not the basis on which the case was put before me."
He decided the second in favour of Quad:

"In my judgment, that is not an adequate justification under section 10B. It still amounts to reliance on the self-interest of the agent in preference to that of the principal. Mr Hill's submission mischaracterises the position as between the parties, which I have explained at sufficient length. Quad, not LLP, was the proprietor of the Mark and had a goodwill associated with it. It remained the proprietor of the Mark and continued to use it. LLP had only a permissive right by licence to use the Mark during the subsistence of the relationship between the parties. It had its own goodwill in its own business, but it never acquired more than a licence to use the Mark. When the relationship ends, it will have to use a different trading name or risk laying itself open to an action for passing off. While the relationship subsists, although it may use the Mark for its own business, it is a fiduciary of Quad and is not permitted to prefer its own interests to those of Quad or to act in a manner that compromises Quad's interests. In seeking to register trade marks that incorporate the Mark, it has clearly done just that."
LLP challenged that finding on the basis that the Judge had been wrong to: 
  • find the existence of a fiduciary relationship between Quad and LLP, and 
  • reject the existence of concurrent goodwill in the QUANTUM ADVISORY mark.
Having dealt with both issues, Lord Justice Newey and Sir Christopher upheld the above finding in para [74].

Quad's Appeal

Quad argued that the Court should have regard to the use of the stylized "Q" in UK00003320701 together with the words QUANTUM ADVISORY in the overall assessment of similarity for the purposes of s.10 much in the way that the Court of Justice of the European Union had done in Case C-252/12 Specsavers International Healthcare Ltd v Asda Stores Ltd ECLI: EUC:2013:497.  The Court was not convinced,  Lord Newey and Sir Christopher said at [77]:
"We are not persuaded by this argument. Specsavers is about establishing likelihood of confusion between a mark and a sign which are similar, and the issue is whether that similarity is sufficient to cause confusion. Matter extraneous to the registered mark may assist, in certain circumstances, in that determination. In the present case the marks being compared are not similar: their only common feature being a letter of the alphabet. No one would say that the marks MCDONALDS and BMW were similar because they both include the letter M, however prominently the proprietors of the former may have stressed the initial letter in their advertising. No amount of extraneous matter can create similarity where none existed before."

If Quad was to win its appeal it would have to be on some other basis.  They said at [106]:

"The only available claim for rectification in respect of the Q Device Mark is that, despite the fact that Quad is not the proprietor of an earlier mark identical or similar to the Q Device Trade Mark, it was applied for and registered in breach of LLP's fiduciary duty to Quad."

Judge Keyser had rejected that argument on the basis that art 13 of Directive 2015/2436 was intended to be a complete code which had excluded arguments based on national law.  His Honour formed that view in reliance on Mr Justice Males's judgment in Marussia Communications Ireland Ltd v Manor Grand Prix Racing Ltd [2016] EWHC 809 (Ch), [2016] Bus LR 808 who had held that where a defence of consent had been recognized and defined by the Community Trade Mark Regulation, there was no room for the application of more elaborate, home-grown principles of consent, such as acquiescence and estoppel.  A defence either fell within the defence of consent as defined by the European legislation or it did not. Lord Justice Newey and Sir Christopher considered Ball v The Eden Project [2001] ETMR 96, Ennis v Lovell (The Swinging Blue Jeans Trade Mark) [2014] RPC 32 and Case C-381/16 Salvador Benjumea Bravo de Laguna v Esteban Torras Ferrazzuolo ECLI:EU: C:2017:889.  They concluded at [96]: 

"In our judgment, a claim by a principal, based on a national law rule, that the registration by an agent or representative of a mark which is not identical or similar to any earlier mark owned by the principal was a breach of fiduciary duty, is not precluded by the Marussia principle."

They agreed with His Honour that registration of marks which are identical with or similar to the QUANTUM ADVISORY mark was an obvious breach of fiduciary duty.  It was similarly a breach of such duty for LLP to register in its own right some part of the branding under which Quad's services were marketed, even if it could not give rise to an action for passing off.  The registration of UK00003320701 in LLP's name was in LLP's interests and contrary to those of Quad.   They concluded at [117] that the registration of UK00003320701 was a breach of the fiduciary duty that LLP owed to Quad.  They decided in the next paragraph that the appropriate remedy was rectification of the register to substitute Quad for LLP as the registered proprietor of UK00003320701.

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