The Court of Appeal allowed an appeal by the plaintiffs from Sir Mervyn Davies's dismissal (The Independent, 11 February 1993) of their passing off claim against the defendants.
The defendants, Allbev Ltd and Thorncraft Vineyard, produce, market and sell a non-alcoholic drink, labelled 'Elderflower Champagne'. It is widely available, costs about pounds 2.45 and is sold mainly in in the type of bottles associated with champagne, with a wired cork. In May, June and July 1992 sales averaged 12,000 bottles a month.
The plaintiffs, a producer of champagne and bodies which regulate the production of wines using French appellations d'origine, sued in passing off for damages and an injunction to restrain the defendants from using the word 'champagne' in relation to Elderflower Champagne and in assertion of a right under Council Regulation (EEC) No 823/87.
Sir Mervyn Davies decided that although there had been a misrepresentation in the defendants' labelling which was calculated to deceive, there was no likelihood of substantial damage to the goodwill belonging to the champagne houses and therefore the passing off claim failed. He also declined to exercise his discretion to grant relief under Community law.
Charles Sparrow QC and Nicholas Bragge (Monier-Williams) for the plaintiffs; Stuart Isaacs QC and Neil Calver (Batten & Co, Yeovil) for the defendants.
LORD JUSTICE PETER GIBSON said that the word champagne was distinctive of a sparkling alcoholic wine produced in, and only in Champagne. Champagne was a quality drink, associated in the minds of the public with celebratory occasions, and retailed from pounds 7.50 upwards.
The authoritative modern formulation of what constituted the tort of passing off was contained in Warnink v Townend & Sons (Hull) (1979) AC 731, the Advocaat case, where Lord Diplock identified five characteristics for a valid cause of action in passing off: (1) a misrepresentation (2) made by a trader in the course of trade (3) to his prospective customers or ultimate consumers of goods or services supplied by him (4) which was calculated to injure the business or goodwill of another trader (in the sense that that was a reasonably foreseeable consequence) and (5) which caused actual damage to a business or goodwill of the trader by whom the action was brought or would probably do so.
There was a misrepresentation that the defendants' product was champagne or in some way associated with it. It was called champagne and the impression the name conveyed was strongly reinforced by the get-up with so many features of a typical champagne bottle present. Some who noticed it was non-alcoholic might think that a non- alcoholic champagne had been produced by the champagne producers in the same way that non- alcoholic wine and beer had been.
The judge's finding on the second and third characteristics were not challenged.
Many members of the public who were prospective purchasers of champagne would be deceived into thinking that the defendants' product was champagne. It was as likely that a not insignificant number would think it had some association with champagne if it was not actually champagne.
The misrepresentation was plainly calculated to injure the defendants' goodwill.
On the evidence of the defendants' sales, the relevant activities of the defendants were not on such a small scale leading to such a small injury that it could be ignored. The erosion of the distinctiveness of the name champagne in this country was a form of damage to the goodwill of the business of the champagne houses.
If the defendants, with their not insignificant trade, were permitted to use the name Elderflower Champagne, the goodwill in the distinctive name champagne would be eroded with serious adverse consequences for the champagne houses. Therefore an injunction would be granted to restrain the defendants from referring to the word champagne. That did not prevent sale of the defendants' product, provided it was not called champagne. Since it was clear that a more than minimal risk of confusion was produced by the use of the name Elderflower Champagne, article 15(5) of the EC regulation was contravened and an injunction to prevent such contravention was granted.
LORD JUSTICE MANN, concurring, said the word 'champagne' had an exclusiveness which was impaired if used in relation to a product which was neither champagne nor associated with businesses which produced champagne. The impairment was a gradual debasement, dilution or erosion of what was distinctive, which would be incrementally damaging to the goodwill acquired by the name.
SIR THOMAS BINGHAM MR, concurring, said that any product which was not champagne but was allowed to describe itself as such must erode the singularity and exclusiveness of the description champagne and so cause the plaintiffs damage of an insidious but serious kind.
The amount of damage which the defendants' product would cause would depend on the size of the defendants' operation. That was not negligible now, and it could become bigger.
There was no rational basis on which, if the defendants' product were allowed to be marketed under its present description, any other fruit cordial diluted with carbonated water could not be similarly marketed so as to incorporate the description champagne. The damage to the plaintiffs would then be incalculable but severe.