Colin Hulme: Oban hotel dispute leads to important lessons in ‘passing off’
Colin Hulme details a recent Sheriff Appeal Court case on ‘passing off’.
What is “passing off”?
Passing off can happen when a company or person seeks to pass off their goods or services as being the same as or associated with a particular brand and seek to capitalise on that brand’s goodwill.
The three-part test for passing off was set out in a House of Lords case concerning Jif Lemon® back in 1990.
- The party bringing the passing off action must have established goodwill in its brand;
- There must have been a misrepresentation such that the public might be confused as to the source of the goods/services in question; and
- Damage must be shown to have resulted or be reasonably foreseeable.
What happened in the dispute between the Oban Hotels?
In the recent Sheriff Appeal Court decision of Crerar Hotel Group Limited v Oban Regent Management Limited  SAC (Civ) 22, two similarly named Oban businesses came head-to-head. Both parties owned hotels on Oban Bay, situated only 800 metres apart. Crerar had a hotel named “Oban Bay Hotel” and objected to Oban Regent rebranding its hotel as “Muthu Hotel on Oban Bay”. Crerar considered that this amounted to a misrepresentation that Muthu Hotel on Oban Bay was the same as or associated with the Oban Bay Hotel.
In the initial proceedings, after hearing legal arguments at a debate, the sheriff ruled in favour of Crerar. Interdict orders were granted which, if left in place, prevented Oban Regent from misrepresenting the Muthu Hotel as being the Oban Bay Hotel or using any closely related name or signage. This was decided on the basis that Oban Regent’s defence lacked candour, specification, and legal relevancy.
Oban Regent challenged this decision appealing to the Sheriff Appeal Court. On appeal it was decided that the interdict should not have been granted and that evidence was required as further facts needed to be proven by Crerar. It was decided that the sheriff could not accept at face value that Crerar had a reputation in the “Oban Bay Hotel” name. It was crucial to the Sheriff Appeal Court’s decision that Crerar had not properly established that it had goodwill in the eyes of the public and had not proven the damage that this alleged passing off had caused. If there was confusion, did this actually result in loss to Crerar?
What lessons can we learn from this?
To avoid the depletion of your customer base or reputational damage if your business is associated with an inferior product or service, it is imperative to act if a third-party is passing off their business as yours. However, in bringing a passing off case, you must be able to prove that the alleged misrepresentation will lead to loss for your business.
It is interesting that this case was brought in the Sheriff Court. There are relatively few IP cases raised in the Sheriff Court with the inevitable consequence that there is less experience and expertise on the bench, compared to the IP Court in the Court of Session in Edinburgh.
It is notoriously difficult to prove that your business has a monopoly right over a place name. Is it fair for Crerar to be able to prevent any other hotel on Oban Bay from describing their location in their name? In certain circumstances, this is possible if you have acquired a strong and unique reputation in the name. Successful examples such as this are HARRIS TWEED® for cloth and St Andrews Links® for golf. This can be difficult to do (these brands have been investing in them for a very long time), and it is often a good idea to incorporate another distinctive feature in your brand either with another word or logo. Such a novel, distinctive feature can be more easily protected and can be used as the cornerstone of your brand protection strategy.
Colin Hulme is a partner at Burness Paull. This article was written with the help of summer student Nadezhda Raduncheva.