In Newman Ltd v Adlem (2005), the Court of Appeal held that there was a duty on the seller of a business not to undermine the goodwill attached to that business (if included in the sale) even after the non-competition covenants in the sale agreement had expired. Goodwill is an intangible asset valued according to the advantage or reputation a business has acquired.

The defendant took over a funeral director's business in 1965. He also offered his services as an agricultural contractor and as a provider of memorial headstones and plaques. By 1993 he was trading under his own name, 'Richard T Adlem,' and had built up a business, which was well respected. He decided to sell the undertaker's business in 1993, but to retain his farming and headstone businesses. He entered into a contract, which contained a restrictive covenant, with B, who bought the funeral business and its goodwill. In this case, the restrictive covenant was an obligation preventing the defendant from competing with B for a specified period.

After the completion of the sale of the funeral business, the business belonged to B, not the defendant. However B frequently used the defendant's services and paid him for these services. Throughout that period, the defendant knew that B was using the name 'Richard T Adlem' for the funeral business.

In 2000, B sold the funeral business to the claimant. By that agreement, the claimant bought the goodwill of the business including the right to carry on business in succession to B and to use the business name. The defendant made no objection, and actually assisted the claimant with about 40 funerals undertaken by the claimant under the 'Richard T Adlem'.

In March 2001, the defendant re-commenced his own business under the name 'Richard T Adlem', and started advertising under that name. He also started to object to the claimant using the name. In April 2002, the defendant registered the name 'Richard T Adlem Funeral Director' as a trade mark.

The claimant commenced proceedings alleging that:

the defendant was passing off his business as an undertaker;

the defendant's assertion of an entitlement to use the name amounted to a derogation from that which had granted to B in 1993; the trade mark registration was invalid pursuant to s 47(2)(b) of the Trade Marks Act 1994 and that in any event it was unenforceable against them by virtue of s 11(3).

The Court held that:

once the defendant had assigned the goodwill in the funeral business, it was not open to him to start, after the expiry of the restrictive covenant, a fresh business under exactly the same name; having sold the goodwill, Mr Adlem was under a duty not to undermine it; the claim in passing off succeeded; and the registration was invalid pursuant to s 47(2)(b) of the Act.

If you require further information contact us.

Email: enquiries@rtcoopers.com