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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Cleopatra Seafoods Ltd v Khera & Ors [2002] EWCA Civ 1260 (23 July 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1260.html Cite as: [2002] EWCA Civ 1260

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(His Honour Judge Fysh)

		Royal Courts of Justice Strand London WC2 Tuesday, 23rd July 2002

Tuesday, 23rd July 2002

1. LORD JUSTICE PETER GIBSON: I will ask Mr Justice Cresswell to give the first judgment.
2. MR JUSTICE CRESSWELL: This is an appeal by the claimant from the order dated 27th February 2002 of His Honour Judge Fysh QC, sitting in the Central London County Court (Chancery Business) upon the trial of the following preliminary issue:

"Has the claimant's claim against [the first to third defendants] or any part of it been settled by the exchange of letters and undertakings in August -September 1999 and if so, on what terms?"

3. The judge answered the preliminary issue in the affirmative. He ordered that the claimant's claim against the first to third defendants be dismissed. The claimant was ordered to pay the first to third defendants costs of the action. The claimant appeals by permission granted by Chadwick LJ on 10th May.

Background

4. I take the following background from the judgment. This is a passing off action. The dispute concerns cooking oil and the drums in which it is sold. The oil is sold by the claimant/appellant, Cleopatra Seafoods Ltd ("Cleopatra"), as wholesalers in 20 litre tin plate drums bearing the unregistered trademark "Lucinda". The moving spirit behind Cleopatra has at all material times been a Mr Hamid.
5. The first defendant/respondent is the managing director of the second defendant/respondent. I shall refer to both these defendants as "KTC". KTC supply empty drums and edible oils in drums marked printed to clients' requirements.
6. During 1996 the companies fell out over the unauthorised supply of some printed drums to a third party, Pilgrim Frozen Foods Ltd ("Pilgrim"), a company with which Mr Hamid seems at an earlier time to have had some personal association. KTC was initially apologetic, saying that the problem had arisen accidentally. Cleopatra said it had not and complained of substantial damage. KTC was left with a quantity of empty drums for Lucinda oil which Cleopatra was unwilling to pay for. Litigation ensued in which KTC as claimants demanded payment for the printed tin plate and the work done for Cleopatra. Just before trial, in mid-April 1999, the dispute was settled by the payment of a modest sum to KTC by Cleopatra. Cleopatra waived all alleged liability on Cleopatra's part for the unauthorised supply of drums to Pilgrim. At this stage, however, no question of passing off was raised.
7. Both the Pilgrim incident and the present proceedings had their origin in the disposal of empty drums by KTC which at the time of their manufacture had legitimately been marked "Lucinda" and which KTC still held in stock. On 21st June 1996 Mr Hamid wrote to the first two defendants in his capacity as managing director of Cleopatra:

"... Lucinda drums are the property of [Cleopatra] and no further delivery of these is to be made to any third party without specific instructions from us. Lucinda is a registered brand of Cleopatra."

The letters of 5th July 1999 and subsequent correspondence.

8. On 5th July 1999, shortly after the conclusion of the Pilgrim proceedings, Cleopatra's solicitors wrote to KTC and for the first time to Indus Foods Ltd ("Indus") in identical terms raising a new issue: an allegation of passing off of oil in drums marked "Lucinda". The letters included the following:

"We understand that our client's products were being misrepresented leading to confusion and indeed deception. The said products are alleged to have been passed off and our client has sustained a loss as a result and indeed has attributed their loss to this unlawful act ... . We therefore have instructions from our client to issue proceedings against you without further ado. We hereby give you formal notice that we require from you in writing by 5.00 p.m. on the 14th July 1999 an irrevocable undertaking that you will not deal in any product whatsoever of whatever nature marked `Lucinda' or any imitation or similar mark. We further require your undertaking and confirmation that you no longer have in your possession any of the offending products. We also require to hear from you in writing by the same date and time, detailed particulars and copies of the invoices of the names and addresses of the people who you have supplied the said offending products with the mark `Lucinda' on it or any imitation and likewise detailed particulars and copy documents showing if applicable who you purchased and acquired the offending products from.

We must make it abundantly clear that unless we receive the aforesaid written undertakings and the information by 5 p.m. on 14th July 1999, then we shall not only issue proceedings against you forthwith but also apply for an interim injunction to be made against you pending the trial of the action for you to refrain from passing off our clients products and for you to disclose and supply the full detailed particulars of to whom you have supplied the products to and also from whom you acquired the product from. We shall also apply for the substantial cost of such an interim application to be paid by yourself.

We also seek production of any such oil that you have in your possession with the Lucinda brand as well as any design, artwork blades or the like. We shall require an indemnity from you as to our client's losses or any potential claims arising as a result. Our client is not guaranteeing the quality or safety of any such oil being sold or supplied.

In addition, it should be noted that even if you give the irrevocable undertaking and the information requested, which our client is in any event entitled to see, we require payment by you of damages [and] of our client's legal costs by virtue of this serious act of passing off."

9. Indus' solicitors replied on 13th July in these terms:

"Our clients have no knowledge of the matters you referred to in your fourth paragraph. Our clients first became aware of your client as a result of a visit to our clients by West Midlands Police on the 21st April 1999 when a small quantity of metal barrels containing vegetable oil were taken away. You will be aware that the allegation of theft made against our client was incorrect and we caution you from using language such as `deception'. Our clients were first supplied with empty cans by KTC ... in or about January 1999. They were sold to our clients on the basis that they were surplus end of line stock for a company which had ceased to exist. Our client had no knowledge of Cleopatra Seafoods Ltd nor of the use of the word `Lucinda' in connection with the sale of oil. Your client does not have any reputation nor do we believe acknowledged sales in the West Midlands area. Our clients therefore accepted the word of KTC (Edibles) Ltd and were supplied a quantity of drums. As a result of the visit from the West Midlands Police who found that the drums were not `stolen' as had been alleged to them our clients have ceased to seek to order or to supply any such drums and emptied the contents from the remaining drums and repacked the oil contained therein destroying the balance. KTC have agreed to supply credit notes to our client for this.

You do not explain in your letter whether or not the word `Lucinda' is a registered trademark. We assume that it is not. Our client has no intention of purchasing any further drums from KTC ... or anyone else. Nor do they have any intention to offer such items for sale. If you wish this to form the basis for an undertaking then you must draft the words which you seek and we shall take our client's instruction on this.

As to the remainder of your letter we are sure that you are aware that your client has no prospect whatever in the circumstances of obtaining any injunctions against our client. Our clients involvement in this matter is totally innocent and your clients obvious delay throws into question the veracity of some of the comments made in your letter.

You should also be aware that the 20 litre drums which our client purchased from KTC ... retail for £7.99 and have a profit element of between 20p to 30p per can dependant upon the source price of the oil."

10. KTC's solicitors replied on 15th July in these terms:

"You also refer to criminal investigations, but in actual fact the police have confirmed to our clients the police enquiry carried out at the instance of your client resulted in the police file being closed and the police saying that they had been totally misled by your clients.

Our clients are prepared however to give an undertaking that they will not deal in any edible oil products marked `Lucinda' or any imitation or similar mark, so as to confuse a purchaser.

Our clients are also prepared to undertake that they no longer have in their possession any tin plate or made up edible oil drums bearing the mark `Lucinda'.

Our clients confirm that all tin plate was destroyed at the conclusion of the recent court case between our respective clients and our clients also say they have not sold any drums filled with edible oil marked with the brand name `Lucinda'.

If you would like to let us have a draft undertaking based upon the above we shall take further instructions."

11. On 20th July the claimant's solicitors wrote to the solicitors for KTC and Indus:

"Thank you for your letter dated the 15th instant of which the contents were duly noted."

12. A reply was promised very shortly.
13. On 2nd August 1999 the claimant's solicitors wrote to the solicitors for KTC and Indus stating:

"Further to our letter dated the 20th July 1999, we are writing to inform you of the following.

We accept a written undertaking on behalf of KTC/Indus in the following terms;

1.Not to sell or distribute drums marked with the title Lucinda and/or marked with details relating to Cleopatra Seafoods save to Cleopatra Seafoods Ltd;

2.Not to use drums for the sale or distribution of oil marked with the title Lucinda and/or details relating to Cleopatra Seafoods;

3.Not to sell, distribute or to assist or to encourage others to sell or distribute oil products in drums likely to give the impression that the oil is Lucinda and/or manufactured or produced by Cleopatra Seafoods Limited.

It should be noted that the above undertaking is without prejudice to Cleopatra Seafood Limited's right to sue for damages, if so advised, or any other legal recourse, if KTC/Indus is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients. Kindly take your client's instruction and revert to us as soon as possible."

14. On 20th August 1999 KTC's solicitors wrote to the claimant's solicitors enclosing a copy of the required undertaking signed by their clients on 16th August, adding:

"Please acknowledge receipt and confirm that the matter is now closed."

15. On 20th September Indus' solicitors wrote to the claimant's solicitors enclosing a "signed undertaking to conclude this matter".
16. On 8th September and 22nd September the claimant's solicitors wrote respectively to KTC and Indus' solicitors acknowledging safe receipt of the undertakings, adding:

"... but [we] cannot at this stage confirm that the matter is now closed. We shall inform you in due course once our investigations are complete."

The issue of proceedings

17. On 28th February 2000 the claimant's solicitors wrote to the solicitors for KTC and Indus stating that proceedings had been issued. The particulars of claim pleaded:

"3.The First Defendant has been carrying on business supplying drums and/or drums containing oil bearing the name `Lucinda' through Kirby's Refineries Limited and/or the Second Defendant to the Third, Fourth and Fifth Defendants.

3.1The First and/or Second Defendant have passed off and attempted to pass off and caused enabled and assisted others to falsely pass off drums of oil as the Claimant's `Lucinda' oil.

3.2The Third, Fourth and Fifth Defendant have passed off and attempted to pass off and caused enabled and assisted others to falsely pass off drums of oil as the Claimant's `Lucinda' oil."

18. The claimant claimed:

"(1) Loss of profit to be assessed;

(2)Damages for damage to reputation;

(3) An injunction to restrain each of the defendants ... from passing off ... oil as the Claimant's `Lucinda' oil."

19. KTC and Indus served defences alleging that the cause of action, if any, had been compromised by agreement between the parties contained in and/or evidenced in correspondence in July and August 1999 and disputing the claim on other grounds.

The judgment below

20. In his judgment the judge recorded the positions of the parties as follows:

"Mr Abrahams submitted that in view of the undertakings [given by KTC and Indus], the injunctive part of the relief was otiose. Mr Noble accepted this and stated that its inclusion had been inadvertent - though he made no application for appropriate amendment. The present claim, said Mr Noble, was at heart simply for damages, interest thereon and costs -in accordance with what had been stated at the end of the letter before action."

21. The judge set out certain principles of law at paragraphs 15 and 16 of the judgment. At paragraphs 17 and 18 he addressed preliminary matters and general considerations. At paragraph 17(b) the judge recorded that it was accepted by both parties that the sentence in the claimant's solicitor's letter of 2nd August 1999 starting with the words "It should be noted that" formed part of the defendants' letters of undertakings. At paragraph 18 the judge stated that he found the claimant's stated position difficult to understand from a commonsense commercial point of view.
22. In paragraphs 19 and 20 the judge set out the relevant background in relation to the question: "Was the passing off claim compromised?"
23. The judge summarised the parties' contentions in paragraphs 21 and 22 as follows:

"21. KTC and Indus contend that the sentence in the 2 August 1999 letter meant this: that if they gave the undertakings, Cleopatra could still sue for damages or any other legal recourse, if so advised, but if and only if they the defendants, subsequently became involved in activities similar to those complained of. Mr Abrahams submitted that this was the correct construction both as a matter of syntax and of commercial commonsense.

22. On the other hand Cleopatra contend that on the proper construction of the sentence,

(a) they may still sue for damages in any event, and

(b) If so advised, they could also sue for `any other legal recourse' if the defendants subsequently became involved in similar activities."

24. The judge continued:

"...the words `if so advised' were I think intended to apply to both the `damages' and `any other legal recourse'. The position of the phrase in the sentence may be inappropriate but the intention is clear. In my judgment, the reasonable person in possession of the relevant background information would understand the phrase `if so advised' as applying both to damages and to `any other legal recourse' collectively and would not take the phrase to be a linguistic hiatus between the two. `If so advised' looks forward to a situation which has not yet arisen.

(b) Next, in `or any other legal recourse' one asks: where is the contrast? Obviously with `damages'. In other words, on Cleopatra's construction, should the defendants become involved in `similar activities' in the future, Cleopatra would on such subsequent occasion seek only an injunction, e.g. delivery up as its substantive relief; it would forego any claim to damages, however great the subsequent wrongdoing. This is simply not `business commonsense': seeking damages in respect of this first (and rather modest) passing off, yet not seeking damages on any subsequent occasion whatever the scale of the wrongdoing. The reasonable man, possessed of the background facts, would in my judgment understand the phrase as recording that if KTC or Indus became involved in any `similar activity' in the future, the damages to which Cleopatra might become entitled would encompass not only those arising in respect of the passing off presently under consideration but also those (and other remedies as well) arising on a future occasion.

The reality was that in the light of its past experience, Cleopatra remained suspicious of the defendants (particularly KTC's) future intentions and wished further to safeguard its position. For this reason, I do not believe that Cleopatra's construction is at all realistic.

24.Mr Noble also sought support for his construction on the penultimate paragraph of the letter before action ... . It will be recalled that this seeks to preserve Cleopatra's position with regard to both damages and costs even if the irrevocable undertakings were to be given. I am not impressed by this reference for the following reasons.

(a)This was the `opening shot' of the passing off allegation and as such, is plainly part of the antecedent negotiations which led to the formulation of the mid-1999 undertakings. I should not therefore have regard to it in any event: see paragraph 16(e).

(b)The second point is this: notwithstanding the foregoing, Mr Abrahams suggested that it was odd that if Cleopatra's solicitors were not intending to conclude the matter as a whole by these undertakings, on their construction of the last paragraph of the 2 August 1999 letter, they reserved for the future only the right to claim damages - and not costs. In answer, Mr Noble pointed out that costs are indeed claimed in the relief in this action in the usual way and that that would include the costs involved in extracting the undertakings. I do not believe that either argument much assists me. What I do however consider to be unusual is the fact (previously noted) that no mention of costs (or damages) was raised in the period between the time of giving the undertakings and the commencement of these proceedings.

25.In approaching construction, I have not taken into account either the defendants' solicitors covering letters or Cleopatra's solicitor's letters acknowledging receipt of the undertakings ... . These are all matters which post-date the undertakings.

Conclusion

25.In my judgment, the defendants' contention as to the proper construction and effect of their undertakings best accords not only with the syntax of the reservation contained in the penultimate sentence of the last paragraph of Cleopatra's solicitor's letter of 2 August 1999 but also with the commercial reality of the situation which prevailed at the time the undertakings in their final form [were] given. I have therefore to answer the remaining preliminary question in the affirmative. In my judgment, Cleopatra's claim was settled by the undertakings which the defendants gave in mid-1999."

The appellant's submissions

25. Mr Noble for the appellant submitted as follows. The letters of 5th July form the factual background to the subsequent correspondence. The judge was wrong in paragraph 24(a) of the judgment to exclude from consideration the letters of 5th July. The critical sentence in the letters of 2nd August should be divided into two and read in two parts, with a break or full stop after the word "advised". Thus, Cleopatra reserved the right to sue for damages if so advised and also the right to sue for any other legal recourse if KTC/Indus were subsequently involved in similar activities. Further, to the extent that the critical sentence in the letters of 2nd August was ambiguous, the terms of the letters of 5th July served to clarify such ambiguity.

The respondents' submissions

26. Mr Abrahams for the respondents, KTC and Indus, submitted as follows. The judge's construction accorded with the commercial reality. In passing off actions an injunction is the primary remedy, as the judge observed at paragraph 17(c). In the critical sentence in the letters of 2nd August the words "damages ... or any other legal recourse" should be read together. In the letters before action of 5th July the claimant's solicitors stated that they required delivery up of oil marked with the claimant's brand name; but now neither side suggests that this was part of a final agreement. The claimant must accept that it compromised on this issue at least. The question for the judge was whether the claimant had also compromised on the issue of damages. However adamant the terms of the letter before action, it casts no light on the terms of the final agreement reached by the parties. As to the issue whether and to what extent the claimant had compromised on this issue, the only document which is relevant is the letter sent to the respondents on 2nd August 1999. The judge considered the language of that letter and the commercial realities of the situation and concluded that both these considerations pointed to an agreement settling the entire claim. His construction was correct.

Analysis and conclusions

27. I turn to consider two preliminary matters.
28. First, if the defendants' construction is correct, it would have been open to the claimant to proceed with the claim if KTC and/or Indus were subsequently (i.e. after August 1999) involved in similar activities to the prejudice of Cleopatra. As I understand the position, the claimant accepted before the judge that there is no basis for alleging that KTC or Indus were involved in similar activities to the prejudice of Cleopatra after August 1999, and that in truth and in fact the claim was intended to be confined to a claim for damages in respect of activities prior to August 1999.
29. Second, I refer to the point made by the judge in paragraph 24(a) of his judgment. In Prenn v Simmonds [1971] 1 WLR 1381, Lord Wilberforce said at page 1385:

"In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the `genesis' and objectively the `aim' of the transaction."

30. The judge was in my view wrong to exclude from his consideration the letters of 5th July as "part of the antecedent negotiations". This was to beg the question: which letters contained or evidenced the agreement between the parties? In my judgment, in the present case it is necessary in determining the preliminary issue to have regard to and construe the correspondence between the parties, starting with the letters of 5th July.
31. What then is the true construction and effect of the sequence of letters, starting with the claimant's solicitors letter of 5th July 1999? I analyse the position as follows:

(1) In the letter dated 5th July the claimant's solicitors said that, unless they received written undertakings and confirmations and detailed information by 14th July, proceedings would be issued forthwith and an application would be made for an interim injunction. The letter also sought production of any oil with the "Lucinda" brand, as well as any design, artwork, blades or the like. An indemnity was also required as to the claimant's losses or any potential claims arising as a result. The solicitors explained:

"Our client is not guaranteeing the quality or safety of any such oil being sold or supplied."

32. In addition, even if the defendants gave irrevocable undertakings and the information requested, the claimant required payment of damages and of its legal costs.

(2) The letters from the defendants' solicitors in reply dated 13th and 15th July set out what purported to be substantial answers to the claimant's case. Nonetheless, the defendants said that they were prepared to give undertakings, and invited the claimant's solicitors to formulate draft undertakings.

(3) The claimant's solicitor's letters of 2nd August set out the written undertakings which the claimant was prepared to "accept". On any view, the position set out in the letters of 5th July was substantially modified. An undertaking and confirmation that the defendants no longer had in their possession any offending product was not called for. Detailed particulars and information, production of oil and an indemnity were not pursued. The critical issue is the true construction of the sentence:

"It should be noted that the above undertaking is without prejudice to Cleopatra's Seafood Ltd's right to sue for damages, if so advised, or any other legal recourse, if [KTC/Indus] is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients."

33. In my view the letters of 2nd August 1999 represented a very significant change in the claimant's position from that set out in the letters of 5th July. Although the construction of the critical sentence is not easy, in my view the better construction is that the claimant reserved the right to sue for damages or any other legal recourse if, and only if, KTC/Indus were subsequently involved in similar activities to the prejudice of the claimant.
34. I make the following points:

(a) I draw attention to the word "accept" and to the words "kindly take your client's instructions and revert to us as soon as possible". The word "accept" underlines the fact that the demands in the letters of 5th July had been substantially modified.

(b)The use of the word "or" should be noted. It would make no sense if KTC/Indus were subsequently involved in similar activities to the prejudice of the claimant that the claim would be for "any other legal recourse", i.e. excluding damages.

(c)If the claimant was reserving the right to sue for damages in any event, I would have expected far clearer language to be used.

(d) It should be remembered that the sentence in the letters of 5th July relied on by the claimant referred to damages and costs. The critical sentence in the letters of 2nd August makes no reference to costs.

35. For these reasons, I agree with the conclusion of the judge as to the true construction of the critical sentence in the letters of 2nd August.
36. I would dismiss the appeal.
37. LADY JUSTICE ARDEN: I have reached a different conclusion. I am indebted to Cresswell J for setting out the material in the parties' submissions, and I gratefully adopt what he has said on those matters.
38. To recapitulate, the relevant paragraph is:

"It should noted that the above undertaking is without prejudice to Cleopatra Seafood Limited's right to sue for damages, if so advised, or any other legal recourse, if Indus Food Limited is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients."

39. This court is faced with opposing views on the way that clause should be construed. The learned judge, whose construction Mr Abrahams (for the first to third respondents to this appeal) adopts, held that the reservation applied only to future acts of passing off. In particular, the judge expressed his view and gave as one of his reasons the reason that the words "if so advised" appearing in the reservation qualified both damages and other remedies. In other words, that phrase was misplaced in the relevant clause. The learned judge also held that the word "other", qualifying "legal recourse", meant that on Cleopatra's construction no damages at all could be sought in proceedings for future passing off. The judge took the view that that was not a commercially sensible arrangement. Third, the judge stressed that the final clause (which I have just read) made no reference to costs, which had been specifically mentioned in the earlier letter of 5th July.
40. The appellants on the other hand (for whom Mr Phillip Noble appears) contend that the reservation is of any claim for damages, but in the case of "any other remedy" only if there was subsequent passing off. They read the two parts of the sentence as separate parts. They attach importance to the fact that the two elements of the clause are used disjunctively, an approach which is appropriate following the phrase "without prejudice to". In other words, they read the clause as if the word "either" were inserted before the first alternative, namely that "the reservation is without prejudice to either Cleopatra's right to sue for damages, if so advised, or any other legal recourse if Indus food is subsequently involved in similar activities". The last mentioned conditional phrase qualifies "only legal recourse".
41. Cresswell J has set out in detail the process of reasoning of the judge. In some respects I do not agree with the judge's approach. First, the judge excluded the letter of 5th July. The judge, in my judgment, was correct to say, as he did in paragraph 16 of his judgment, that it is not legitimate to refer to antecedent negotiations in order to throw light on possible ambiguities of language. But this is a difficult area.
42. In Investors Compensation Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912, Lord Hoffmann in setting out the principles of construction, which have now become well established in our courts, said this:

"The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them."

43. However, in my judgment, the judge was not entitled to exclude the letter of 5th July for all purposes. The letter contained some of the terms of the offer that ultimately formed part of the agreement between the parties, for example, the agreement on behalf of Cleopatra not to start proceedings for interim relief if they received satisfactory undertakings. The 5th July letter thus contained terms of an offer which survived into the ultimate agreement.
44. I agree, as I have said, that it is not legitimate to find the meaning of the relevant reservation in the letter of 2nd August by looking to see what the parties intended to achieve by negotiation of that clause; but the particular element with which we are concerned, namely the reservation of a right to claim damages, was never the subject of negotiation. Moreover, the question here is whether that final paragraph of the letter dated 5th July survived as respects the final agreement and whether in respect of damages it was simply being repeated. The intervening correspondence was wholly directed to the working out of the undertaking. Accordingly, Mr Phillip Noble contends that the relevant part of the letter of 5th July was simply part of the factual background. I accept Mr Noble's submission on that, although it is not critical to my conclusion.
45. Second, in my judgment, the judge misunderstood Cleopatra's contention. As I have explained, the judge took the view that the effect of Cleopatra's construction was that, if it brought proceedings for future acts of passing off, it would not claim damages because of the final clause of the 2nd August letter. However, that was not Cleopatra's contention in this court at least. Cleopatra's contention was that the earlier part of the clause dealing with damages applied to proceedings if and whenever brought.
46. Third, the judge expressed the view that the proceedings which Cleopatra subsequently brought in early 2000 lacked proportionality. At paragraph 18 of his judgment he said this:

"In the light of the foregoing, I have found Cleopatra's stated position difficult to understand from a commonsense, commercial point of view. For one thing, I cannot but feel that the case which Cleopatra is now advancing lacks proportionality. Thus:

(a) Both defendants willingly gave the undertakings sought within about a month of demand; from their point of view, the matter was `water under the bridge'. They, like any litigant in a similar factual situation, wanted the matter concluded as painlessly as possible. At that stage the costs involved were, so one would think, minimal.

(b) By the time this action was commenced, Cleopatra must have had some idea as to both the cause and the relatively modest extent of the passing off.

(c) The present action, a money claim pure and simple, was raised precipitately, over six months after the undertakings had been given and without apparently, any pre-action proposals for possible compromise."

47. The judge continues:

"Though subparagraph (a) may possibly be ignored for present purposes as being too subjective properly to be taken into account, for the reasons to which I refer in the next paragraph, I do not think that is true of what I have set out in paragraph (b)."

48. Taking those points in turn, the judge referred first to the intention of the defendants. I consider the judge's misgivings about the relevance of that matter to construction to be well taken. As regards matter (b), the judge was looking to the view which Cleopatra must have had as to the cause of action for damages at the time the action was commenced. It seems to me that there are two objections to this. First, the judge was looking at knowledge at a point in time some six months subsequent to the date of the agreement, and, in addition, was looking only to the knowledge of Cleopatra. The critical question had to be: what was the knowledge known to both parties at the date the agreement was made? The judge did not suggest, and in my view rightly so, that the third factor in sub-paragraph (c) was relevant.
49. The judge has immense experience in intellectual property matters, and counsel have readily accepted that. But as I have pointed out, the critical question for interpretation purposes is: what was the knowledge available to both parties at the date they made their agreement? The fact was that the first to third respondents had been caught red-handed supplying oil in tins marked "Lucinda" to the fourth and fifth respondents. Moreover, the position was that they had had some 11,000 drums, which had not been used by Cleopatra, and had had those drums since about 1996. Moreover, in the letter of 5th July Cleopatra through its solicitors, Forbes & Co, had made it plain that they considered that they had suffered loss as a result of the passing off. That letter said:

"We understand that our client's products were being misrepresented leading to confusion and indeed deception. The said products are alleged to have been passed off and our client has sustained a loss as a result and indeed has attributed their loss to this unlawful act. Our clients have stated that this had been going on for a while and that their suspicions were originally raised at the beginning of 1996. Their turnover had suffered a downturn over a number of years. Our client's suspicions were confirmed of late and it is noted that criminal investigations had been undertaken."

50. So the claimants were of the view that they had suffered damage and indeed had information from the fourth and fifth respondents about the supply of oil marked "Lucinda" to those respondents.
51. It is correct that Indus by their solicitors replied on 13th July in the terms of the letter which my Lord has already read, but the judge referred to this letter as a protestation of innocence. Certainly it was not a matter which Cleopatra had to accept. Moreover, the judge noted that Cleopatra had some considerable concern about the activities of the first to third respondents, in view of the fact that they had already had to bring proceedings against them once for passing off in 1996.
52. With those observations, I now turn to the critical wording in the letter of 2nd August 1996.
53. In my judgment it is necessary to ascertain the meaning of the final paragraph in the light of the information known or available to both parties.
54. The first matter to which I draw attention is the existence of a potential claim by Cleopatra to seek damages for passing off, if it was able to prove its allegations. At the stage in time which is relevant Cleopatra did not know exactly what the value of that claim would be, although, on any view, it would not have been a major claim. But the claim was under active consideration, as both parties knew.
55. Second, Cleopatra was not getting anything in return for giving up this claim to damages. Why should it give up a claim, even if the value is speculative, for absolutely nothing in return? Moreover, the fact that such a claim is not normally brought, as the judge states, does not mean that Cleopatra could not, or would not, wish to bring this claim in the circumstances of this case. The fact is that the respondents had to give undertakings in order to prevent Cleopatra from bringing proceedings for an interim injunction. They got a benefit by giving the undertakings, namely that they would save the costs and effort of dealing with those proceedings. Next, looking at the correspondence which Cresswell J has set out, it is clear that the first to third respondents never objected to the reservation, and there is nothing to show that they expected to be free from the damages claim for these alleged acts of passing off.
56. Third, on the construction which I have reached and prefer, it is not necessary to reach the conclusion that the words "if so advised" are misplaced. They correctly signal a break between the first and the second parts of the reservation.
57. Fourth, if it was the intention of the parties to reach the position whereby all other claims arising out of the passing off which was then known about were abandoned, they would surely have used some such wording as accepting the undertakings in full and final satisfaction of all claims arising out of those matters.
58. Fifth, there was no need for the parties to mention damages or any other claims in respect of future passing off. What Cleopatra had to do was to ensure that by accepting undertakings it was not precluding itself from proceedings separately later.
59. Sixth, it is possible to read the correspondence, starting at 2nd August and subsequently, in the following way: that the letter of 2nd August is itself an offer:

"We will accept these undertakings if you give them to us on these terms",

and to see the reaction of the first to third respondents as a counter-offer. It will be recalled from the judgment of Cresswell J that the way that Indus responded was to say that they gave the undertaking to conclude the matter. A similar response was, as I understand it, sent on behalf of KTC. But that counter offer was not itself accepted because on 22nd September Forbes & Co wrote back saying that they could not confirm the matter was closed; that they would inform the parties in due course once their investigations were completed. That is how matters stood until the proceedings had begun. So it has never been suggested that the undertakings are not binding, and accordingly, looking at that sequence of correspondence, it seems to me that the first to third defendants were under no illusion that Cleopatra was reserving its right to claim damages out of the passing off of which it knew.

60. As against those matters, I appreciate and take into account that nothing was said about the costs or certain other matters raised in 5th July letter. But it was logically possible, in my view, for Cleopatra to abandon some of those matters and yet continue insisting on its right to bring a damages claim in respect of the passing off which we have read about. In the circumstances, it may well have been reasonably likely that they should want to take that course. I also appreciate that there is merit in the respondent's contention on the grounds that, since the language is ambiguous, the clause ought to bear the meaning for which they contend. However, for my own part, I do not think that one can avoid the exercise of finding the meaning of the critical wording in the letter of 2nd August by relying on a presumption of this kind.
61. In conclusion, in all the circumstances I have not found this an easy point of construction. However, I would prefer the construction which leads to this result, namely that the critical wording deals with two separate subject matters, namely that it contains a reservation of a damages claim for any act of passing off and, second, reserves other remedies, apart from damages, in respect of passing off occurring subsequently to the letter of 2nd August 1999.
62. For those reasons I would allow the appeal.
63. LORD JUSTICE PETER GIBSON: It is not in dispute that an agreement between the parties was reached in the correspondence. The short but not easy point of construction to which this appeal gives rise is whether the letter of 2nd August 1999 contains all the terms of a compromise between the parties, or whether it is to be read subject to the antepenultimate paragraph of the letter before action dated 5th July 1999.
64. Involved in this is a subsidiary question whether the first sentence of the final paragraph of the letter of 2nd August 1999 is to be read in two parts so as to provide that the reservation of the claimant's right to sue for damages is subject to one condition alone, that is to say "if so advised", while the reservation of the claimant's right to sue for "any other legal recourse" is subject to one other condition alone, that is to say if the defendants were subsequently involved in similar activities to the prejudice of the claimant. On that point Mr Abrahams for the defendants submits that if they gave the undertakings the claimant could still sue for damages or seek any other legal recourse if so advised, but if, and only if, the defendants subsequently became involved in activities similar to those complained of. Mr Noble for the claimant submits that on the proper construction of the sentence, the claimant may still sue for damages in any event and, if so advised, could also seek any other legal recourse if the defendants subsequently became involved in similar activities.
65. To my mind it is obvious that the court must consider the earlier letter of 5th July 1999 to see whether it constitutes the framework, as was suggested for the claimant, for the agreement subsequently reached and in that way providing a term to which the terms in the subsequent letter are subject, or whether the term of the earlier letter were superseded by the terms of the letter of 2nd August. The letter of 5th July 1999 is notable for its firm requirements that by 14th July 1999 (1) there should be an irrevocable undertaking not to deal in any product marked Lucinda; (2) there should be confirmation that the defendants no longer had in their possession any of the offending products; (3) detailed particulars and copies of invoices and the names and addresses of the persons to whom the products were supplied and from whom the products were purchased and acquired should be given. Further requirements were (4) the production of oil with the Lucinda brand in the possession of the defendants; and (5) an indemnity. These requirements were backed by the threat of proceedings if the requirements were not met, including an application for an interim injunction and for costs.
66. Then comes the paragraph on which Mr Noble places reliance. This requires the payment of damages and costs even if the undertaking and information required were provided. By the time of the deadline, the third defendant had replied in terms which suggested that it might be prepared to give the undertaking if drafted by the claimant, but it suggested also that the claimant had no prospect of succeeding in obtaining injunctions, and it provided information as to what had happened to the offending products its possession.
67. The letter of 2nd August to my mind shows that the claimant was no longer adhering to the requirements which it had made in the letter of 5th July. The time for compliance before proceedings were to be started had come and gone. The letter is notable for its silence as to all the requirements of the earlier letter, save for the undertaking and the reference to damages in the final paragraph. Nothing is said about what I have numbered (2) to (5) as being the claimant's requirements. There is no mention of the earlier demand for costs even if the undertaking was provided. The silence of the letter of 2nd August on these points, coupled with the express reference to damages, seems to me to point away from the view that the term of the letter of 5th July that payment of damages would be required was still a stipulation of any agreement.
68. As for what I have called "the subsidiary question", to my mind it is unnatural to divide the first sentence of the final paragraph of the letter of 2nd August into two parts. I do not regard the words "if so advised" or their position as significant. It seems to me that those words are almost redundant. They could be implied, even if they had not been there. But far more significant seem to me to be the words "or" followed by "any other legal recourse". I emphasise the word "or", implying an alternative to what has gone before, and "other", as implying other than damages. It would be very surprising if the claimant intended that if the defendants became involved in similar activities it was merely reserving the right to legal recourse other than damages. Instead, the sentence makes good business sense as reserving the right, only if the defendants became involved in further passing off, to bring proceedings for damages or any other relief. The claimant had the undertaking in the terms it required, because it had drafted those terms, and that is always the most important relief sought in a passing off action.
69. Viewed objectively, the position resulting from the construction I favour seems to me to make commercial sense, in that the claimant was drawing a line under the immediately past episode in relation to passing off, having obtained the requisite undertaking.
70. In my judgment therefore, for these as well as the reasons given by Cresswell J, I reach the conclusion that the judge was right and that the dispute was compromised on the terms of the 2nd August letter.
71. I too would dismiss this appeal.
Order: Appeal dismissed. We think it appropriate to order the appellants to make an interim payment as to costs in the sum of £3,500.